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QUARTERLY UPDATE Q4 2018
AGRICULTURE
Page 2
INDUSTRY OVERVIEWM&A TRANSACTIONS AND INDUSTRY OVERVIEW
-
20
40
60
80
100
120
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Q32016
Q42016
Q12017
Q22017
Q32017
Q42017
Q12018
Q22018
Q32018
Q42018
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5
10
15
20
25
Tran
sact
ion
Vo
lum
e (
Nu
mb
er o
f Dea
ls)
Tran
sact
ion
Val
ue
($ B
illio
ns)
Transaction Value Transaction Volume
Source 1: Capital IQ. Deals announced, closed or effective. Q4 cut-off of December 31, 2018. Capital IQ report run February 3, 2019.Source 2: https://www.fcc-fac.ca/en/ag-knowledge/ag-economics/top-economic-trends-of-2018-farmland-values.htmlSource 3: Statistics Canada – 2016 Census of AgricultureSource 4: https://www.fcc-fac.ca/en/ag-knowledge/ag-economics/canadian-farm-equipment-market-expected-to-be-softer-in-second-half-of-2018.html
• Intense industry consolidation is still occurring. Large agricultural firms continue to enhancetheir positions in the Canadian market with acquisitions of terminal and processing facilities,and divestitures of non-core assets. There currently exists active competition for deals.
• Increased investment in agricultural infrastructure in the Prairies is energizing transactionactivity. Trade wars are impacting Canadian producers and may drive transaction activity asindustry players look to diversify offerings. Together with government funding through theCanadian Agricultural Partnership, these investments will likely lead to new market activity.
• The decline in independent input providers continues due to industry consolidation.
• Input costs continue to rise while commodity prices have been relatively stable over thefour-year period evaluated, yet many commodities face price pressures as a result ofinstability in the global marketplace2.
• Growth in farm cash receipts is expected to be moderate at 2 percent in 2018, slowing to 1.3percent in 20194. As a leading indicator to consumer spending, slowdowns in farm cashreceipts could be balanced by significant used inventory in the marketplace.
• Continued consolidation and interest of remaining independent dealerships. Buyer poolshrinking may balance out valuation multiples in line with historical averages.
• Increased consolidation in Canadian farming – the number of farms decreased 6 percentbetween 2011 and 2016, with 7 percent growth in the number of large farms over this sameperiod3.
• Succession issues with family farms and large corporate farms have fuelled consolidationamongst primary producers, while demand for quality land has never been higher.
NORTH AMERICAN AGRICULTURE & FOOD PRODUCTSPUBLICLY AVAILABLE MERGERS & ACQUISITIONS1
Number of mergers and acquisitions in Canada in the fourth quarter of 2018 in agriculture and food products.111
Industry & Infrastructure
Inputs & Commodity Markets
Primary Producers
Ag Equipment Manufacturers & Dealerships
Page 3
1 Industry & Infrastructure (Processing, Terminals, Logistics)
Page 4
INDUSTRY & INFRASTRUCTURECURRENT HIGHLIGHTS
The new United States/Mexico/Canada (USMCA) trade deal(commonly referred to as the ‘new NAFTA’ or North American FreeTrade Act) is expected to have widespread impacts on Canada’sagricultural industry and in particular, its dairy producers.
The new deal provides American farmers with tariff-free access to3.6 percent of Canada’s dairy market, sending hundreds of millionsof dollars more in American product into Canada.1 This could putincreased financial pressure on dairy farmers, impacting the valueof production quotas.
Consolidation is expected to continue as producers look toenhance their strategic positioning in an increasingly competitivemarketplace now that there is some certainty over the agreement.
USMCAThe ‘New NAFTA’
USMCA trade deal to have widespread impacts
Crop Research Investment
Growing together
Saskatchewan’s continued crop-research investmentMore than $12 million in funding for 44 crop-related researchprojects was announced through Saskatchewan’s AgricultureDevelopment Fund (ADF) and Strategic Research Initiative (SRI).
The funding is aiming to further crop research that will provideCanadian farmers, producers and agribusiness with knowledge andtechnology to compete globally and improve their bottom lines.3
This continued support for innovation will likely lead to furtherconsolidation, with agricultural-focused companies looking foradditional opportunities to grow in this sector.
Canada’s ProducersAt the forefront
Canadian producers facing challengesThe introduction of USMCA will further increase financial pressureon dairy producers as a pricing model change would impact theprice producers receive for their product. See page 9 for furtherdiscussion on Canada’s dairy industry.
The new Canada Food Guide displays a shift towards more plant-based proteins which also has the potential to impact primaryagricultural producers2.
Increasing market changes could contribute to furtherconsolidation in the agricultural space, and in particular in dairyfarming, as producers aim to diversify their offerings, and seek todivest of non-core assets to strategic buyers.
Source 1: https://www.macleans.ca/economy/the-usmca-explained-winners-and-losers-whats-in-and-whats-out/Source 2: https://www.theglobeandmail.com/canada/article-new-food-guide-shifts-toward-plant-based-foods/Source 3: https://www.saskatchewan.ca/government/news-and-media/2019/january/16/crop-research-investment
Page 5
23%
5%
3%
6%
5%
24%
0% 5% 10% 15% 20% 25% 30%
Nutrien Ltd.
Archer-Daniels-MidlandCompany
Bunge Limited
The Andersons, Inc.
AGT Food and Ingredients Inc.
The Mosaic Company
NTM EBITDA MARGIN
20%
5%
3%
5%
3%
18%
0% 5% 10% 15% 20% 25% 30%
Nutrien Ltd.
Archer-Daniels-MidlandCompany
Bunge Limited
The Andersons, Inc.
AGT Food and Ingredients Inc.
The Mosaic Company
LTM EBITDA MARGIN
25%
5%
1%
5%
10%
7%
0% 5% 10% 15% 20% 25% 30%
Nutrien Ltd.
Archer-Daniels-MidlandCompany
Bunge Limited
The Andersons, Inc.
AGT Food and Ingredients Inc.
The Mosaic Company
NTM REVENUE GROWTH
0%
5%
0%
-15%
-18%
28%
-20% -10% 0% 10% 20% 30%
Nutrien Ltd.
Archer-Daniels-MidlandCompany
Bunge Limited
The Andersons, Inc.
AGT Food and Ingredients Inc.
The Mosaic Company
LTM REVENUE GROWTH*
Source: Capital IQ Note *: Nutrien Ltd. LTM Revenue Growth removed for presentation as growth incorporates recent M&A with Potash Corp. and Agrium merging into Nutrien.Figures above are based on median peer group metrics.
INDUSTRY & INFRASTRUCTUREPUBLIC COMPANY PERFORMANCE
Avg: 0.0% Avg: 8.8%
Avg: 9.2% Avg: 11.0%
Forecasted Improvements in Revenue Growth and EBITDA Margin for Public CompaniesThe median last twelve month (LTM) revenue growth for the highlighted companies was 0.0 percent (-3.5 percent in thethird quarter of 2018) and is forecast to show strong improvements with expected next twelve month (NTM) revenuegrowth of 8.8 percent (15 percent in third quarter 2018).
The median NTM EBITDA margin for these companies is expected to reach 11 percent (10.5 percent in third quarter2018), while the expected enterprise value (EV) over EBITDA multiples are forecast to remain steady at 9.6x (10.5x – Q32018) over the NTM.
Page 6
9.5x
8.9x
10.5x
9.2x
12.0x
7.2x
0.0x 5.0x 10.0x 15.0x 20.0x 25.0x
Nutrien Ltd.
Archer-Daniels-MidlandCompany
Bunge Limited
The Andersons, Inc.
AGT Food and Ingredients Inc.
The Mosaic Company
NTM EV/EBITDA
13.4x
8.6x
9.8x
9.6x
22.7x
8.5x
0.0x 5.0x 10.0x 15.0x 20.0x 25.0x
Nutrien Ltd.
Archer-Daniels-MidlandCompany
Bunge Limited
The Andersons, Inc.
AGT Food and Ingredients Inc.
The Mosaic Company
LTM EV/EBITDA
Source: Capital IQ
INDUSTRY & INFRASTRUCTUREPUBLIC COMPANY PERFORMANCE
Avg: 12.1x Avg: 9.6x
Trading Multiples & Operating Statistics
(Figures In $CAD Millions, except percentages
and ratios)
Company
Market
Capitalization
Enterprise
Value Revenue
Revenue
Growth EBITDA
EBITDA
Margin
Nutrien Ltd. $39,284 $54,103 $20,895 306.8% $4,040 19.3%
Archer-Daniels-Midland Company $31,343 $40,889 $83,330 5.2% $4,484 5.4%
Bunge Limited $10,288 $21,544 $59,210 -0.4% $2,076 3.5%
The Andersons, Inc. $1,152 $2,003 $4,184 -14.7% $198 4.7%
AGT Food and Ingredients Inc. $403 $1,059 $1,590 -17.5% $47 2.9%
The Mosaic Company $15,364 $20,538 $11,839 27.6% $2,280 19.3%
Median $12,826 $21,041 $16,367 2.4% $2,178 5.1%
Mean $16,306 $23,356 $30,175 51.2% $2,187 9.2%
LTM Operating Figures
(Figures In $CAD Millions, except percentages
and ratios)
Company
Revenue
Growth
EBITDA
Margin
NTM
EV/EBITDA
LTM
EV/EBITDA
LTM
EV/REV
Nutrien Ltd. 24.6% 22.9% 9.5x 13.4x 2.6x
Archer-Daniels-Midland (ADM) Company 5.4% 5.4% 8.9x 8.6x .5x
Bunge Limited 0.6% 3.3% 10.5x 9.8x .3x
The Andersons, Inc. 5.2% 5.7% 9.2x 9.6x .5x
AGT Food and Ingredients Inc. 9.7% 5.0% 12.0x 22.7x .7x
The Mosaic Company 7.1% 23.5% 7.2x 8.5x 1.6x
Median 6.3% 5.5% 9.4x 9.7x .6x
Mean 8.8% 11.0% 9.6x 12.1x 1.0x
NTM Consensus Estimates Valuation
Page 7
2 Inputs & Commodity Markets
Page 8
INPUTS & COMMODITY MARKETSPRICE CHANGES
102
104
106
108
110
112
114
116
118
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200
400
600
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1,000
1,200
Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17 May-18 Nov-18
Farm
Pri
ce I
np
ut I
nd
ex
$/m
etr
ic t
on
ne
Wheat - excl. durum Barley Soybeans Grain corn
Canola Flaxseed Durum Lentils
Dry peas Farm input price index
Chart Source : Farm product prices, crops and livestock – Stats Canada.
Commodity Price Changes and Farm Input Price Index Costs While average commodity prices have seenstability in recent years, a closer look at specificcommodities indicate drastic fluctuations–notably lentils which have faced price pressureresulting from global oversupply and trade wars.The Statistics Canada Farm Input Price Index(FIPI) estimates the change in price that farmerspay for inputs into their farming operationthrough time. The FIPI indicates input costs tofarmers have increased 4.9 percent since thefourth quarter of 2014.
Note: Farm input price index available to Q2 2018.
CROP COMMODITY PRICES
BarleyFlaxseedCanolaSoybeansDry peasDurumLentils
+6.8%+4.5%-2.5%-2.8%
-14.8%-16.7%-32.5%
Largest Price Changes –November 2018
Long-termΔ Since November
2016
Short-termΔ Since November
2017
+19.2%+6.6%-0.9%-6.7%
-20.8%-8.8%
-50.6%
Page 9
INPUTS & COMMODITY MARKETSMARKET PRESSURE, FUTURES & EXPORTS
Source 1: Bloomberg – Ag Futures as of 6:00 PM EST February 1, 2019.Source 2: http://www.agr.gc.ca/eng/industry-markets-and-trade/canadian-agri-food-sector-intelligence/crops/reports-and-statistics-data-for-canadian-principal-field-crops/canada-outlook-for-principal-field-crops-2019-01-25/?id=1548707046784
Dairy Market Update USMCA has placed increasing pressure on Canada’s dairy producers, pressure that may contribute to adairy pricing model change. The recent release of the Canada Food Guide notably included a shift towardsconsumption of plant-based proteins, departing from the previous Canada food guide which included meatand dairy products as significant components of the overall guide. Ongoing market changes suggest theremay be future opportunities for consolidation in the industry.
Canada’s Principal Field Crops Exports2 (kilotonnes)
Total Grains and Oilseeds Total Pulses and Special Crops
2017 – 2018 2018 – 2019(f)
45,303
Updated forecast as at January 25, 2019. Forecast in Q3 update was as at September 17, 2018.
46,408(Up from forecast in Q3
update of 45,453)
Futures – Spring 2019 Contracts1
Canola (January)Wheat (December)Soybean (November)Corn (December)Oats (December)Live Cattle (December)
502.50 CAD/MT514.75 USD/bu.856.75 USD/bu.367.00 USD/bu.295.25 USD/bu. 116.78 USD/lb.
Futures –Winter 2019 Contracts*
Canola (March)Wheat (March)Soybean (March)Corn (March)Oats (March)Live Cattle (April)
482.40 CAD/MT524.25 USD/bu.917.75 USD/bu.378.25 USD/bu.288.50 USD/bu. 126.28 USD/lb.
FUTU
RES
CO
NTR
AC
TS
Note *: As included in MNPCF Quarterly Update –Agriculture – Q3 2018. These quotes on Futures havebeen included for comparison purposes only.Note: Cattle costs are USD per hundredweight.
2019 – 2020(f)
46,555
2017 – 2018 2018 – 2019(f)
5,363 5,101(Down from forecast in
Q3 update of 5,430)
2019 – 2020(f)
5,310
Page 10
3 Primary Producers
Page 11
PRIMARY PRODUCERSLAND VALUE TRENDS
-
500
1,000
1,500
2,000
2,500
3,000
3,500
0%
5%
10%
15%
20%
25%
1980 1985 1990 1995 2000 2005 2010 2015
Val
ue
($/a
cre)
Pri
me
Inte
rest
Rat
e (%
)
FARM VALUES VS. FARM CASH RECEIPTS & INTEREST RATES
Average prime interest rate Value per acre of farm land and buildings (Canada)
Note: Information for value per acre of farm land and buildings (above) has been updated to July 1, 2017. 2018 values expected for 2019 Q1 update.Source 1: https://www.ratehub.ca/prime-mortgage-rate-historySource 2: Stats Canada: Table 002-0003: Value per acre of farm land and buildings, at July 1.Source 3: https://www.discovermoosejaw.com/ag-news/agriculture-news-sk/fcc-optimistic-about-agriculture-sector-in-2019Source 4 https://www.fcc-fac.ca/fcc/about-fcc/reports/2017-farmland-values-report-e.pdf
Key external drivers affecting agricultural industry performance in Canada include: commodity prices, interest rates,consumer preferences, growing season conditions and result and farm land values.
The chart above highlights growth in farm land and building values. Values have increased significantly along with farmcash receipts over the last 15 years while interest rates have displayed a downward trend.
Recent interest rate hikes have widespread impacts within the farming sector due to levels of debt financing. Increases ininterest rates result in larger interest payments on outstanding debt, which may impact farmland valuations. While rateshave increased recently, they remain at near all-time lows. Continued industry consolidation and scarcity of available landmay counteract any decreases in valuation resulting from increasing interest rates.
Farm Credit Canada (FCC) Chief Agricultural Economist JP Gervais expects producers’ margins will be tighter in 2018-2019,with an expectation for farm asset values (particularly farmland) in Saskatchewan to be more stable or grow at a moremoderate pace.3
The 2017 FCC Farmland Values Report published April 23, 2018 indicates strong growth in value for 2017, with an 8.4percent increase for farm land in Canada, with boosts of 10.2 percent in Saskatchewan, 7.3 percent in Alberta, and 5.0percent in Manitoba.4
Since 2000, interest rates have decreased 4%,
while farm values per acre increased 240%*.
*Using Bank of Canada prime interest rate and information in graph above.
Farm Values Continue to Rise
1 2
Farm Cash Receipts (Canada)
-
500
1,000
1,500
2,000
2,500
3,000
0%
5%
10%
15%
20%
25%
1980 1985 1990 1995 2000 2005 2010 2015
Value ($/acre)
Prime Interest Rate (%)
INTEREST RATES AND FARM VALUES
Average prime interest rate Value per acre of farm land and buildings (Canada)
-
10
20
30
40
50
60
70
Farm
Cas
h Re
ceip
tsBi
llion
s
Page 12
4 Agricultural Equipment Manufacturers & Dealerships
Page 13
AGRICULTURAL EQUIPMENT MANUFACTURERS & DEALERSHIPS
Farm cash receipts have levelled in recent years, with 2018 receipts falling below third quarter 2017, yetexceeding receipt totals from third quarter 2016. Farm cash receipts display a defined pattern of drastic annualfluctuations as cash receipts are a lagging indicator of ag equipment sales. Third quarter 2018 results inagriculture implement sales appear to suggest a turnaround as three of the four companies below outperformedtheir two previous years’ third quarter sales totals.
Farm Cash Receipts and Agricultural Implement Sales
Source 1: Capital IQNote: John Deere has a fiscal year-end of October. John Deere quarterly results based on calendar months were used for presentation purposes to align results with other companies.
Data Table – Farm Cash Receipts and Ag Implement SalesFarm Cash Receipts and Ag Implement Sales 2013 2014 2014 2014 2014 2015 2015 2015
(Figures in $CAD Millions) Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Rocky Mountain Equipment (RME) 291 198 242 231 294 220 213 256
Cervus Equipment - Agricultural Equipment (CE) 151 103 164 201 164 140 185 233
John Deere - Ag and Turf (DE) 6,252 8,410 7,608 6,986 5,196 6,997 6,933 6,100
CNH Industrial (New Holland and Case IH) - Ag Equipment (CNHI) 4,400 4,089 4,731 4,091 3,941 3,263 3,787 3,257
Farm Cash Receipts (FCR) 6,989 8,776 7,218 7,594 8,459 9,609 7,176 8,242
2015 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4f
286 189 233 223 286 210 237 239 273 220 303 233 284
154 131 188 240 179 146 235 271 182 159 277 286 N/A
5,077 7,215 6,141 5,950 4,726 7,937 6,657 7,009 5,240 9,084 8,236 7,360 N/A
4,138 2,754 3,645 3,096 3,800 3,126 3,760 3,314 4,063 3,326 4,356 3,408 N/A
8,866 10,440 6,832 7,655 8,744 10,515 7,738 8,134 8,371 9,751 7,821 7,890 N/A
14
16
18
20
1,000
3,000
5,000
7,000
9,000
Q4
2013
Q2
2014
Q4
2014
Q2
2015
Q4
2015
Q2
2016
Q4
2016
Q2
2017
Q4
2017
Q2
2018
Q4f
2018
RESULTS BY QUARTER
John Deere - Ag and Turf (DE) CNH Industrial (New Holland and Case IH) - Ag Equipment (CNHI) #REF!
0
2
4
6
8
10
12
-
100
200
300
400
Q4
2013
Q2
2014
Q4
2014
Q2
2015
Q4
2015
Q2
2016
Q4
2016
Q2
2017
Q4
2017
Q2
2018
Q4f
2018
Farm
Cas
h R
ece
ipts
($ b
illi
on
s)
Re
ven
ue
($ m
illi
on
s)
Rocky Mountain Equipment (RME) Cervus Equipment - Agricultural Equipment (CE)
John Deere - Ag and Turf (DE) CNH Industrial (New Holland and Case IH) - Ag Equipment (CNHI)
Farm Cash Receipts (AB, SK, MB)
Page 14
-80
-30
20
70
120
170
Jan-2014 Jul-2014 Jan-2015 Jul-2015 Jan-2016 Jul-2016 Jan-2017 Jul-2017 Jan-2018 Jul-2018 Jan-2019
Ch
ange
(%
)
SHARE PRICE & S&P/TSX INDEX CHANGES1
S&P/TSX Composite Index (̂ GSPTSE) - Index Value
Rocky Mountain Dealerships Inc. (TSX:RME) - Share Pricing
Cervus Equipment Corporation (TSX:CERV) - Share Pricing
CNH Industrial N.V. (NYSE:CNHI) - Share Pricing
Deere & Company (NYSE:DE) - Share Pricing
AGRICULTURAL EQUIPMENT MANUFACTURERS & DEALERSHIPS
Source 1: Capital IQSource 2: https://www.reuters.com/article/us-deere-results/deere-outlook-for-2019-disappoints-amid-trade-war-slowing-demand-idUSKCN1NQ1CW
Share Price ChangesShare price fluctuations have been increasingly volatile since 2016 with John Deere experiencing the largest fluctuationsin share price increasing over 101 percent since the first quarter of 2014. Cervus and Rocky Mountain share prices havemoved generally in lockstep with one another, Rocky Mountain slightly outperforming Cervus.
“Deere & Co gave an underwhelming earnings forecast… for fiscal2019 after missing quarterly profit estimates amid a U.S. trade battlewith China that has… hurt agriculture equipment demand... (Deere’s)global sales for agriculture and turf equipment are projected to rise 3percent in 2019, significantly slower than a 15 percent year-on-yearjump this year2.”
Reuters on Deere & Co(NYSE: DE)
Notable & Quotable
Page 15
About Us – MNP Corporate Finance Inc.
Page 16
MNPCF – LEADERSHIP TEAM
DUE DILIGENCE LEADERSHIP
TRANSACTION LEADERSHIP
Aleem BandaliManaging Director
Dale AntonsenManaging Director
John CaggianielloManaging Director
[email protected] 416.513.4177
Brett FranklinPresident
Mike ReynoldsManaging Director
Johnny EarlManaging Director
[email protected] 604.637.1514
Dan PorterManaging Director
Stephen ShawManaging Director
Jason BurgessManaging Director
Mark RegehrManaging Director
Craig MaloneyManaging Director
Patrick KhouzamManaging Director
Page 17
MNPCF – RECENT TRANSACTIONS
AGRICULTURE
NATIONAL
Page 18
OTHER RECENT INDUSTRY M&A TRANSACTIONS
Source: Capital IQAll figures are in $CAD unless otherwise indicated.
• MNP Corporate Finance Inc. acted as exclusivefinancial advisor to a Confidential Seller in structuringand negotiating this transaction.
• Bonnefield is Canada’s foremost provider of land-leasefinancing for farmers, dedicated to preserving“farmland for farming” across Canada. Bonnefield andits farmland funds are 100% Canadian owned andcontrolled.
ClosedOctober 30, 2018
Industry Farming
Transaction Value (TV)
Not disclosed
TV/Revenue Not disclosed
• MNP Corporate Finance acted as exclusive financialadvisor to Norsask Farm Equipment Ltd. in structuringand negotiating this transaction.
• Founded in 1948, Redhead is a large andcomprehensive multi-line heavy equipment dealer inSaskatchewan.
• Norsask is a full-service Case IH farm equipmentdealership located near North Battleford,Saskatchewan.
AnnouncedDecember 6, 2018
IndustryAgricultural and Farm Machinery
Transaction Value (TV)
Not disclosed
TV/Revenue Not disclosed
acquired
Acquired land from
• MNP Corporate Finance acted as exclusive financialadvisor to Tri West Agro Ltd. in structuring andnegotiating this transaction with Westview Co-operative Association Ltd.
• Westview Co-op has served its members and guestssince 1933 and has multiple locations in Alberta.
• Founded in 2003, Tri West has become a leadingindependent agricultural retailer in East Central Albertawith a state-of-the-art blending fertilizer plant, anAWSA-approved warehouse for agricultural chemicalsand bulk bin storage.
ClosedSeptember 14, 2018
IndustryProcessing, distribution
Transaction Value (TV)
Not disclosed
TV/Revenue Not disclosed
acquired
• MNP Corporate Finance Inc. acted as exclusivefinancial advisor to Fiskel Farms Transport Ltd. instructuring and negotiating this share transaction.
• Wright Spud Farms Inc. is a large potato and grainfarming company based in the Carberry area and hasbeen named as one of McCain Foods' Top 10 Producers.
• Fiskel Farms is a 3,300-acre potato and grain farm witha McCain Foods grower’s contract located nearCarberry, Manitoba.
Closed April 15, 2018
Industry Farming
Transaction Value (TV)
Not disclosed
TV/Revenue Not disclosed
Wright Spud Farms
Acquired
Fiskel Farms
