The M&A crop circle

In the last few days the media has brought us ongoing devastating pictures of the floods in Pakistan, while at the same time we have read stories about the increase in food prices in the UK as being one of the drivers in the rise in inflation. It is quite easy to draw a link between the two – let me expand.

So far this year the world’s global supply of wheat has been seriously impacted by a series of climate driven events. These range from extreme temperatures and the resulting fires and damage to wheat crops in Russia, droughts in other big wheat producing countries like China and Poland, and flooding in Bulgaria and Hungary. Such events have led to a number of countries all over the world restricting or looking at restricting their crop exports.

When supply tightens on a commodity, inevitably companies involved in supplying that commodity are suddenly very much in demand. Even companies which are part of the supply chain to a sector where demand is rising and supply is falling can feel the benefits. And this has most definitely been the case in the last few months in terms of M&A deals in cereals, crops and the periphery industries.

Earlier this week there was news that Agrium Inc, the US-based global supplier of agricultural products, may launch a counter offer to Graincorp’s ongoing offer of $770m for AWB Ltd in Australia. This was followed yesterday by a rumour of a $38.5bn takeover of Potash by BHP. Whilst neither Agrium or Potash are cereal producers directly, they are heavily involved in supplying commodity companies which are increasingly facing climate driven factors affecting their crop yields and are looking for solutions.

Since December 2009 there have been 59 deals with an aggregated value of $336m involving grain and crop target companies, these are certainly numbers of deals that have not been seen before in this sector. So, bizarrely, while such companies are finding ever-challenging circumstances in which they have to operate, there is a competitive M&A environment evolving around them.

The only consolation we can take as consumers about all of this is that while we may be having to pay more for our food we at least have food easily accessible to us.