ArborGen Holdings Announces Sale of ArborGen’s ANZ Business
ArborGen Holdings Announces Sale of ArborGen’s ANZ Businesses
1 November 2021
An agreement has been entered into for the sale of ArborGen’s New Zealand and Australian
businesses (ArborGen ANZ) for NZ$22.25m in cash, with settlement scheduled for 30 November 2021
Proceeds from the sale will be used to invest in and expand ArborGen’s high-growth US and South
American businesses, explore investment in new growth opportunities in in vitro and carbon-related
segments, and repay debt
ArborGen remains on track to deliver its highest MCP sales year to date in the US
The sale of ArborGen ANZ affords ArborGen great strategic and financial flexibility, providing a strong
balance sheet for the company to pursue growth opportunities
ArborGen Holdings Limited (NZX: ARB) (the Company or ArborGen) has entered into an agreement to sell
ArborGen ANZ for NZ$22.25m to Geyser Limited Partnership (Geyser).
The transaction has arisen as a result of the strategic review being undertaken by the Company (as
announced on 30 June 2021 https://www.nzx.com/announcements/374791). The Company engaged PwC
to assist with the strategic review.
ArborGen ANZ is an operationally separate and significantly smaller operation than ArborGen’s US business.
It is forecast to contribute approximately 15+% of Group Revenue in FY’22, but has a lower growth profile
compared to ArborGen’s other markets. ArborGen ANZ is currently operating at around its maximum
combined productive capacity of approximately 30 million tree stocks per annum in NZ and 5.5 million per
annum in Australia, and further expansion of capacity to grow the core forestry and horticulture businesses
would require significant additional capital spend. The Board believes that sale proceeds are better
deployed in higher growth markets in the US and Brazil.
The Company’s core strategy is to grow the sales of its higher margin proprietary advanced genetic products
(Mass Control Pollinated (MCP) and Varietals) in the United States where there is significant identified
potential to grow market share and drive advanced genetics adoption. Further investment in the US comes
at a time when that business is poised to benefit from decades of investment in developing best-in-class
proprietary MCP products, expanding supply through orchards expansions across the US South, and
upgrading both industrial and private landowner customers to MCP seedlings. The Company confirms that
it continues to be on track to deliver its highest MCP sales year in the US this year with year-to-date MCP
sales orders now at approximately 105 million seedlings, 25 million units higher than the prior year. In
particular, MCP unit sales to the private landowner segment, where the majority of MCP sales growth will
occur are projected to be up over 45% compared to prior year.
Further investment in Brazil comes at a time when ArborGen has grown to become one of the largest
commercial suppliers of eucalyptus and loblolly pine seedlings, benefitting from increased recognition of
its proprietary advanced genetics, and strong pulp and charcoal markets.
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ArborGen’s chairman, David Knott Jr, said “The sale of ArborGen ANZ will realise value for the relatively
mature ANZ business and provides the Company the flexibility to invest in expanding its high growth US
and Brazilian businesses, explore investment in new growth opportunities in in vitro and carbon related
segments and repay debt.”
“While the Company continues to consider other options to unlock value for the benefit of all shareholders,
the sale of ArborGen ANZ affords ArborGen great strategic and financial flexibility, creating a strong
platform for the Company to pursue growth opportunities for the benefit of all shareholders, including
acquisition opportunities,” said David Knott Jr.
Summary of Key Terms
Geyser has agreed to acquire the business of ArborGen ANZ, comprising the assets (including
goodwill) of ArborGen New Zealand Unlimited and ArborGen Australia Pty Limited for a total
purchase price of NZ$22.25 million on a debt free and cash free basis and with a locked box
mechanism applying from 1 October 2021. The purchase price of NZ$22.25 million will be reduced
by a working capital adjustment of NZ$450,000 reflecting the seasonality of the business.
The transaction is structured as an asset sale, with Geyser assuming all ArborGen ANZ’s obligations
(other than tax) which were incurred before completion in the ordinary course of business.
Completion of the transaction is scheduled for 30 November 2021.
The transaction is conditional on at least 75% of ArborGen ANZ’s permanent employees accepting
Geyser’s offer of employment and, and ArborGen New Zealand Unlimited effecting the transfer of
its 2.34% shareholding in Radiata Pine Breeding Company Limited to Geyser. No other regulatory
consents or approvals are required.
Geyser is a consortium of New Zealand investors predominantly comprising charitable trusts and
private families, with the consortium led by Mr Hugh Fletcher. Given Mr Fletcher’s historical
relationship with ArborGen, the Board commissioned Grant Samuel to complete an independent
assessment of the merits of the transaction, with the purchase price above the midpoint of Grant
Samuel’s assessed valuation range of NZ$20.7 - $23 million. In Grant Samuel’s opinion, the
consideration offered for ArborGen ANZ is fair. A copy of that report is attached to this
announcement.
The sale agreement contains a typical set of warranties concerning ArborGen ANZ. Except for
claims relating to any business agreements which cannot be transferred at completion, any and all
claims must be brought within three months of completion. Other than for certain breaches of
certain fundamental representations (e.g. title to assets and the locked box undertaking, for which
liability is capped at the purchase price), all claims under the sale agreement are capped at an
aggregate NZ$450,000.
ENDS
Any enquiries should be directed to:
Sharon Ludher-Chandra
Company Secretary & Performance Improvement Director (NZ-based)
E: info@arborgenholdings.com
Tel: 09 356 9800
http://www.arborgenholdings.com or email info@arborgenholdings.com
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* ArborGen ANZ’s earnings are largely earned in the first 6-7 months of the fiscal year in line with the annual crop cycle (sales of treestocks in
NZ and Australia are usually completed by September of each year, with establishment of the following year’s crop commencing around then).
Horticulture and other services revenues (a much smaller component) are spread more evenly through the year. The latest revised forecast US
GAAP EBITDA for ArborGen ANZ for the full fiscal year ending 31 March 2022 is US$2.0 million (NZ$2.7 million). ArborGen’s actual US GAAP
EBITDA through to 30 September 2021 was US$2.1 million (NZ$2.9 million). Excludes NZ public company costs and the Strategic Review costs.
ArborGen
ArborGen is the largest commercial global seedling supplier and a leading provider of advanced genetics, for the forest industry.
Employing state-of-the-art technology, ArborGen is developing high-value products that significantly improve the productivity of a
given acre of land by enabling our customers to grow trees that yield more wood per acre with greater consistency and quality in a
shorter period of time. For more information, please visit ArborGen’s website at www.arborgen.com.
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INDEPENDENT APPRAISAL REPORT
IN RELATION TO THE PROPOSED SALE OF ARBORGEN ANZ
GRANT SAMUEL & ASSOCIATES LIMITED
NOVEMBER 2021
TABLE OF CONTENTS
1 Overview of the Proposed Transaction _______________________________________________________ 1
1.1 Background ______________________________________________________________________ 1
1.2 Details of the Proposed Transaction ___________________________________________________ 1
1.3 Profile of the Buyer ________________________________________________________________ 2
1.4 Shareholder Approval ______________________________________________________________ 2
2 Scope of the Report ______________________________________________________________________ 4
2.1 Purpose of the Report ______________________________________________________________ 4
2.2 Basis of Evaluation _________________________________________________________________ 4
3 Profile of ArborGen ______________________________________________________________________ 5
3.1 History __________________________________________________________________________ 5
3.2 Group Overview ___________________________________________________________________ 6
3.3 Overview of Intellectual Property _____________________________________________________ 7
3.4 Overview of Products _______________________________________________________________ 7
3.5 Overview of Operations by Country __________________________________________________ 10
3.6 Group Financial Performance _______________________________________________________ 12
3.7 Group Financial Position ___________________________________________________________ 15
3.8 Group Cash Flows ________________________________________________________________ 16
3.9 Capital Structure and Ownership ____________________________________________________ 17
3.10 Share Price Performance and Liquidity ________________________________________________ 17
4 Profile of ArborGen ANZ _________________________________________________________________ 20
4.1 Overview of Products ______________________________________________________________ 20
4.2 Customers ______________________________________________________________________ 20
4.3 Operating Locations _______________________________________________________________ 21
4.4 Market Information _______________________________________________________________ 22
4.5 Financial Performance _____________________________________________________________ 25
4.6 Financial Position _________________________________________________________________ 27
4.7 CP Production Issues & Forecast _____________________________________________________ 28
4.8 Cash Flow Projections _____________________________________________________________ 29
5 Valuation of ArborGen ANZ _______________________________________________________________ 30
5.1 Preferred Methodology ____________________________________________________________ 30
5.2 Summary _______________________________________________________________________ 31
5.3 Discounted Cash Flow Assumptions __________________________________________________ 31
5.4 Qualitative Factors ________________________________________________________________ 32
5.5 Earnings Multiple Analysis __________________________________________________________ 33
6 Merits of the Proposed Transaction ________________________________________________________ 39
6.1 Evaluation of the Sale Price and Terms of the Proposed Transaction ________________________ 39
6.2 Evaluation of the Impact on ArborGen’s Earnings and Financial Position _____________________ 40
6.3 Future Opportunities ______________________________________________________________ 40
6.4 Board and Management Focus ______________________________________________________ 41
6.5 Regional Impacts _________________________________________________________________ 41
6.6 Dividends _______________________________________________________________________ 41
6.7 Market Value and Liquidity Considerations ____________________________________________ 42
6.8 Transition _______________________________________________________________________ 42
6.9 The Likelihood of an Alternative Offer ________________________________________________ 42
6.10 Alternatives to the Proposed Transaction ______________________________________________ 43
6.11 Rationale, timing and circumstances surrounding the Offer _______________________________ 43
6.12 Conclusion ______________________________________________________________________ 43
APPENDIX A – Recent Transaction Evidence ______________________________________________________ 44
APPENDIX B – Comparable Listed Companies _____________________________________________________ 46
APPENDIX C – Valuation Methodology Descriptions ________________________________________________ 49
APPENDIX D – Interpretation of Multiples _______________________________________________________ 52
APPENDIX E – Qualifications, Declarations and Consents ____________________________________________ 54
GLOSSARY
TERM DEFINITION
ArborGen Australia The Australian operations and assets of ArborGen
ArborGen or the Company ArborGen Holdings Limited
ArborGen NZ or ArborGen New Zealand The New Zealand operations and assets of ArborGen
ArborGen ANZ Combined operations and assets of ArborGen NZ and ArborGen Australia
CellFor CellFor Inc.
Consideration
The total purchase price for ArborGen ANZ of NZ$22.25m on a cash and debt free basis
The Consortium Investment consortium led by Mr. Hugh Fletcher
CP Control Pollinated
EBIT Earnings before interest and tax
EBITDA Earnings before interest, tax, depreciation and amortisation
FY20XX The financial year ended 31 March 20XX
FIRB Foreign Investment Review Board
Grant Samuel Grant Samuel & Associates Limited
IP Intellectual Property
MCP Mass Control Pollinated
NZX New Zealand Stock Exchange
OIO Overseas Investment Office
OP Open Pollinated
Proposed Transaction The proposed sale of the business and assets of ArborGen ANZ
RPBC Radiata Pine Breeding Company
RSUs The Restricted Share Units under the 2021 LTI plan
Sub-Committee The Sub-Committee of Independent Directors of ArborGen Holdings
TCLP Tenon Clearwood Limited Partnership
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1 Overview of the Proposed Transaction
1.1 Background
On 30 June 2021 ArborGen Holdings Limited (ArborGen or the Company) announced it had received a
confidential, non-binding, indicative, incomplete and highly conditional proposal to acquire all the shares in,
or assets of, ArborGen by way of a scheme of arrangement or other alternative acquisition structure. At the
same time the Directors of ArborGen also announced a strategic review to consider all options to unlock
value for the benefit of all ArborGen shareholders. The options considered included:
§ a potential sale of ArborGen shares;
§ divestment of some of the assets of ArborGen; and
§ a US listing.
The parties expressing interest in acquiring the shares in ArborGen would all require approval from the
Overseas Investment Office (OIO) in New Zealand to acquire the New Zealand assets and may require the
approval of the Foreign Investment Review Board (FIRB) in Australia to acquire the Australian assets. This
would be a long process and creates uncertainty for a potential transaction that involved the sale of ArborGen
to an overseas purchaser. As part of the Strategic Review, the Directors sought expressions of interest from
different parties in acquiring the Australian and New Zealand assets of ArborGen (ArborGen ANZ).
On 1 November 2021, ArborGen announced that it entered into a binding agreement to sell ArborGen ANZ
to a consortium of investors and charitable trusts led by Mr Hugh Fletcher (the Consortium), (the Proposed
Transaction). Mr Fletcher was a Director of Rubicon Limited (Rubicon)(now known as ArborGen Holdings
Limited) until September 2019.
1.2 Details of the Proposed Transaction
The total purchase price for ArborGen ANZ is NZ$22.25 million on a debt free and cash free basis (the
Consideration) which will be paid in cash (less a NZ$450,000 working capital adjustment on completion that
reflects the seasonality in the business). The Consortium has agreed to acquire the business of ArborGen
ANZ which comprises the assets (including goodwill) of ArborGen New Zealand Unlimited and ArborGen
Australia Pty Limited. The assets include premises, plant and equipment, vehicles, rights under leases,
inventory, biological assets (mother plants and orchard trees), the benefit of business agreements, business
records, IT systems, the shareholding in Radiata Pine Breeding Company (RPBC), Intellectual Property (IP),
trade debtors, supplier deposits, prepayments, goodwill, cash in the business bank accounts but does not
include (among other matters) cash in hand at the bank in the business bank accounts immediately prior to
1 October 2021 and any intragroup debt.
As part of the purchase price the Consortium has agreed to be responsible for assumed liabilities which
comprise the obligations of the ArborGen New Zealand Unlimited and ArborGen Australia Pty Limited in
respect of trade creditors, accrued employee entitlements, inventory or services to be delivered in respect
of customer deposits, customer deposits, accrued expenses, any liability in respect of product warranty
claims arising after completion, any liabilities or obligations under the business agreements and any other
obligations or liabilities incurred by ArborGen ANZ in the ordinary course of business.
The Proposed Transaction is subject to the satisfaction of the following two conditions:
§ at least 75% of ArborGen ANZ permanent employees accepting new offers of employment of which
such terms must be no less favourable than what they had prior to the Proposed Transaction; and
§ ArborGen’s RPBC shareholding and membership transferring to the purchasing entity on completion of
the Proposed Transaction.
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ArborGen will also provide a perpetual licence to the purchasing entity to use the “ArborGen” word mark,
and a licence to use the ArborGen logo for six months from completion, royalty free, exclusively in Australia
and New Zealand. At all times after the date six months after completion the “ArborGen” word mark can
only be used if accompanied by the words “Australasia”, “ANZ”, “Australia”, “New Zealand” or “NZ” in close
proximity. The purchasing entity will also be granted a perpetual right to use the "www.ArborGen.co.nz”
and “www.ArborGen.com.au” domain names. The rights described above are non-assignable and terminate
if there is a change in more than 50% of the partnership interests in the purchasing entity from the position
as at completion.
ArborGen, ArborGen New Zealand Unlimited and ArborGen Australia Pty Limited are providing fundamental
warranties in relation to the Proposed Transaction including the following:
§ all these companies are duly incorporated and are authorised to enter the Proposed Transaction;
§ no approvals from a government agency are required to be obtained to carry out for the Proposed
Transaction;
§ the obligations of each of these companies under the sale and purchase agreement are binding and
enforceable;
§ no leakage (i.e. essentially being payments outside the ordinary course of business by ArborGen New
Zealand Unlimited and ArborGen Australia Pty Limited) will occur up to and including completion; and
§ the assets are legally and beneficially owned by (or leased or licensed to) the ArborGen New Zealand
Unlimited and ArborGen Australia Pty Limited and will pass to the purchasing entity free of
encumbrances. These assets comprise all the assets used in the business of ArborGen ANZ and
represent all the assets necessary for the conduct of the business.
ArborGen’s aggregate total liability for any claims will not exceed the purchase price in relation to
fundamental warranties and for all other claims will not exceed NZ$450,000. Claims are limited to a period
of three months following completion, except for claims relating to assignment/novation of business
agreements which last for up to 12 months following completion.
Key undertakings by ArborGen last for a period of three years and include not competing in New Zealand or
Australia, not soliciting Australia and New Zealand customers and not soliciting employees (unless a person
responds to a public advertisement).
1.3 Profile of the Buyer
The Consortium is a Limited Partnership. This is a standard structure used by private equity buyers. The
members of the Consortium are all New Zealand domiciled and include a group of charitable trusts, families
and private investors including Mr Hugh Fletcher. None have any involvement in ArborGen. Mr Hugh
Fletcher is the sole owner of the General Partner and will be the only investor in the Consortium who is a
prior director or officer of ArborGen.
As the Consortium is a New Zealand entity for OIO purposes no regulatory consent will be required. The
Consortium is seeking to invest in New Zealand based assets and has indicated that they are long term holders
of assets. No funding is required from outside of the Consortium and no bank debt will be employed in the
Proposed Transaction.
1.4 Shareholder Approval
The Proposed Transaction does not amount to a Major Transaction for the purposes of section 129 of the
Companies Act 1993 and therefore shareholder approval by way of special resolution is not required. The
Proposed Transaction is not a takeover, scheme of arrangement, major transaction or related party
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transaction for the purposes of the NZX Listing Rules. Grant Samuel understands that no shareholder
approvals are required for the Proposed Transaction to proceed.
4
2 Scope of the Report
2.1 Purpose of the Report
The Sub-Committee of Independent Directors of ArborGen (the Sub-Committee) have engaged Grant Samuel
& Associates Limited (Grant Samuel) to prepare an Independent Report on the merits of the Proposed
Transaction. The report should not be used for any purpose other than as an expression of Grant Samuel’s
opinion of the Proposed Transaction. This report should be read in conjunction with the Qualifications,
Declarations and Consents outlined at Appendix E. Grant Samuel is independent of ArborGen and the
Consortium and has no involvement with, or interest in, the outcome of the Proposed Transaction.
2.2 Basis of Evaluation
The term “merits” has no definition either in the Takeovers Code itself or in any statute dealing with securities
or commercial law in New Zealand. While the Takeovers Code does not prescribe a meaning of the term
“merit” the Takeovers Panel has interpreted the word “merits” to include both positives and negatives in
respect of a transaction.
Grant Samuel has evaluated the Proposed Transaction by reviewing the following factors:
§ the estimated value range of ArborGen ANZ’s net operating assets and the value of the Proposed
Transaction when compared to that estimated value range;
§ the likelihood of an alternative offer and alternative transactions that could realise fair value;
§ any advantages or disadvantages for ArborGen’s shareholders of the Proposed Transaction; and
§ the current trading conditions for ArborGen ANZ and the timing and circumstances surrounding the
Proposed Transaction.
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3 Profile of ArborGen
3.1 History
ArborGen Inc. was formed in 2000 through the consolidation of the forestry research and development
programmes at Fletcher Challenge Limited (Fletcher Challenge), International Paper Company and Westvaco.
Fletcher Challenge was separated in 2001, resulting in the sale of Fletcher Energy, the listing of Fletcher
Building and Rubicon (now known as ArborGen). The formation of Rubicon was to assist in the capitalisation
of Fletcher Challenge Forests Limited and to allow it to become a stand-alone entity. As part of the separation
Rubicon retained Fletcher Challenge’s 31.7% shareholding in ArborGen Inc.
In 2007 ArborGen Inc. acquired the tree improvement businesses of International Paper, MeadWestvaco
(formerly Westvaco) and Rubicon (being the Horizon2 business) for US$60 million. This transformed
ArborGen Inc. into a company that produces and sells to thousands of established customers, with
approximately 400 million treestocks today. The overall transaction was structured to allow International
Paper, MeadWestvaco and Rubicon to maintain their 33.3% ownership interest in ArborGen Inc.
In 2012 ArborGen Inc. strengthened its position in the US through the acquisition of the assets, germplasm
(i.e. genetics), technology and IP of commercial loblolly pine varietal company CellFor Inc. (CellFor). CellFor
was a leading researcher, developer and supplier of elite varietal pine tree seedlings to foresters in the United
States and South America. CellFor was the only global clonal pine competitor to ArborGen Inc.
In 2013 ArborGen Inc. licensed rights to produce and sell IP eucalyptus under a breeding programme in Brazil
and expanded operations for both pine and eucalyptus products. ArborGen Inc. built on its existing
geographies in 2014, with the acquisition of the Edendale nursery business in New Zealand and further
production expansion in Brazil.
On 29 June 2017 Rubicon acquired the remaining 66.7% of the shares it did not own in ArborGen Inc. for
US$28.5 million. Subsequently in January 2018 Rubicon sold its 44.88% interest in the Tenon Clearwood
Limited Partnership (TCLP) which resulted in ArborGen Inc. becoming Rubicon’s sole asset. In September
2019, Rubicon Limited was renamed ArborGen Holdings Limited.
Following the disposal of TCLP the following key operational developments have occurred:
§
In February 2018 ArborGen entered into an exclusive 10-year agreement with the South Carolina
Forestry Commission to exclusively lease and operate the Taylor Nursery in Trenton South Carolina.
§
In November 2018 ArborGen entered into an agreement to lease TexMark Timber Treasury’s (TTT)
nursery and orchard operations in Texas. The agreement allowed ArborGen to increase its annual
nursery production capacity by approximately 30 million seedlings annually. As part of this agreement
ArborGen obtained the option to purchase this nursery and operations in 2023 and TTT have a
corresponding put option to sell the leased properties. ArborGen also entered into an exclusive multi-
year agreement to supply TTT all of its Texas seedling requirements for an initial term of 5 years, with
term-renewal periods thereafter.
§
In November 2018 ArborGen executed a eucalyptus genetic license agreement with Gerdau Acos
Longos SA which gave it the exclusive right to develop and commercialize Gerdau’s genetically improved
eucalyptus clones in Brazil. Subsequently, in November 2019 ArborGen leased a 15 million seedling
capacity nursery in Inimutaba Minas Gerais from Brotale. Another 15 million seedling nursery in Mato
Grosso do Sul was also leased from Brotale effective from April 2020.
§
On 11 November 2020 ArborGen announced an agreement with Vallourec S.A. that gave ArborGen the
exclusive rights to develop and commercialise Vallourec’s genetically improved eucalyptus clones in
Brazil.
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3.2 Group Overview
ArborGen is a leading global provider of tree seedling products. It owns one of the world’s largest and most
diverse genetic libraries for commercial tree germplasm and has catalogued over 30,000 tree families
(including over 35,000 individual pine and eucalyptus species). ArborGen has 18 commercial scale nurseries
and 14 seed producing orchards globally which have the capacity to produce ~540 million seedlings per year.
The company employs 380 people globally. ArborGen produces conventional and advanced tree seedlings
with improved growth rates, log quality, stress tolerance, disease resistance and wood quality. It is one of
the world’s largest providers of advanced genetic seedlings.
ArborGen is headquartered in South Carolina, USA with operations in the USA, Brazil, New Zealand and
Australia. ArborGen is listed on the NZX and there are several entities within the Group. The primary trading
entity is ArborGen Inc.
The following table and graphic provides an overview of ArborGen’s operations by market:
OVERVIEW OF OPERATIONS BY MARKET
UNITED STATES
NEW ZEALAND &
AUSTRALIA
BRAZIL GROUP TOTAL
FY21 Revenue (US$m) 36.8 9.9 6.0 52.7
% of Group Revenue 70% 19% 11% 100%
Seedling production capacity (p.a.) ~400m ~40m ~100m ~540m
Number of nurseries 8 7 3 18
Number of orchards 10 2 1 14
Key seedling species Loblolly pine,
slash, longleaf
and other pine
and hardwoods
Radiata pine,
eucalyptus and
other native and
horticultural
species
Loblolly pine and
eucalyptus
Source: ArborGen Corporate Information
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3.3 Overview of Intellectual Property
ArborGen’s IP encompasses the following components:
§
Genetic library. ArborGen owns one of the world’s largest and most diverse repositories of commercial
tree germplasm. It has a catalogue of more than 30,000 tree families with the ability to identify trees
that will perform best in specific regions and sites.
§
Tree improvement expertise. ArborGen has been built on 100+ years of tree improvement research.
Its products are based on the most comprehensive and extensive field trial programme in forestry,
currently conducting ~1,000 field trials containing more than 1 million trees.
§
Proprietary production technologies. ArborGen’s production know how enables the commercialisation
of unique proprietary products and entry into new crop species.
§
Genomics and bioinformatics. ArborGen has been pioneering in the use of genomics in loblolly pine,
which accelerates product development timelines. ArborGen uses advanced statistical models and
proprietary growth and yield models to develop products with advanced genetics.
§
Biotechnology product development. ArborGen has developed eucalyptus products with herbicide
resistance using its eucalyptus transformation system.
The trade secrets, protocols, operating procedures and know-how that comprise the IP owned by ArborGen’s
business operations in New Zealand and Australia are separate and distinct from that owned by any other
ArborGen entity. In particular, the New Zealand and Australian IP pertaining to somatic embryogenesis and
organogenesis does not overlap with other ArborGen entities. The Australasian somatic embryogenesis
technology was developed to propagate radiata pine (pinus radiata), that of the other ArborGen entities was
developed for loblolly pine (pinus taeda). In each case, IP is species-specific and was developed
independently by the Australasian and U.S. research groups.
3.4 Overview of Products
ArborGen’s loblolly and radiata seedlings are primarily produced from seed created through two different
production processes: Mass Control Pollinated (MCP or CP) seedlings and Open Pollinated (OP) seedlings. In
addition, it also sells varietals (or clones). An overview of each product is provided below:
Mass Control Pollinated Seedlings
ArborGen’s advanced and proprietary loblolly MCP seedling capability is a core driver of ArborGen’s growth
in the US. This capability has come from decades of tree improvement R&D activities. In 2011-2012
ArborGen’s MCP orchard capacity in the US South was expanded significantly, with the benefits of this now
beginning to be realised as the large number of younger trees in its orchards (aged between seven and twelve
years) are becoming highly productive. The margins earned on MCP seedlings are 6-8 times that of OP
seedlings. The MCP seedling process is set out below.
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ARBORGEN’S LOBLOLLY MCP SEEDLING PRODUCTION PROCESS
In addition to increasing the availability of MCP seeds, ArborGen is focusing on developing the pipeline of
next generation advanced products to ensure the supply of superior seedlings with higher margins to
maintain ArborGen’s competitive position in the US South. ArborGen is projecting the availability of the
higher-value MCP products such as MCP-Elite and MCP-2.0 in the US, where it has a strong competitive
advantage, will increase substantially over the next five years.
The chart below is a simple illustration of the value created by ArborGen’s high margin MCP products and
varietal products relative to OP products. The term bare land value is a discounted cash flow valuation
technique used for timberland investments that calculates the value of bare land in timber production and
reflects the value of the crop.
ArborGen is also the only global developer and supplier of loblolly varietal products. Varietals are also used
as parent trees to produce proprietary OP elite and MCP products.
BARE LAND VALUE – US$ PER ACRE
760
1,100
1,170
1,320
1,420
500
700
900
1100
1300
1500
OPMCP-AdvancedMCP-SelectMCP-EliteMCP-2.0
Year
0
Q1 – Orchards
Planted
Plant orchards to
begin timeline.
6 – 8 years
Year
7*
Q1 – MCP Bagging
and Pollination
Collect pollen from
selected trees.
Bag flowers and
pollinate.
Remove bags after 1
month.
Leave to mature.
18 months
Year
8
Q4 – Cone Harvest
and Seed Extraction
Harvest pinecones
and extract seeds.
Four weeks.
Year
9
Q1 – Cone Harvest
and Seed Extraction
Harvest pinecones
and extract seeds.
Four weeks.
Q2 – Sow Seeds
Sow seeds in field
nurseries and grow.
Nine months.
Year
10
Q1 – Lift Seedlings
and Dispatch
Lift seedlings and
dispatch to
customers.
3 months.
*First bagging can range from 6-8 years
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Open Pollinated Seedlings
Open Pollinated (OP) seedlings are the alternative to MCP. OP still comprises approximately 70% of
ArborGen’s production in the US. OP seedlings are produced using a superior mother tree and unknown
father trees. OP seedlings are available in bareroot and containerised format. Bareroot tree stocks are
produced by sowing seed (and also setting cuttings in the case of New Zealand) into formed beds in a nursery.
Depending on tree species and nursery geographic location, bareroot seedlings and cuttings take between
one and two years to reach maturity before being ready for harvest and forest planting. Container tree stocks
are produced by sowing seed or setting cuttings into standard diameter cells that contain an optimised
growing media blend. Container tree stocks can be delivered over a wider seasonal timeframe, allowing
customers to plant in “shoulder” months which are earlier and later than the typical bare-root planting
window.
Varietals
ArborGen’s in vitro capabilities are a result of decades of research and investment. The core of these
capabilities is the ability to execute clonal (varietal) propagation at scale, combined with cryopreservation
and cell banking technology. Each varietal is a genetic copy of a specific tree rigorously tested for superior
traits.
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3.5 Overview of Operations by Country
3.5.1 New Zealand and Australia
A detailed overview of ArborGen’s New Zealand and Australia operations is provided in section 4 of this
report.
3.5.2 USA
The USA is ArborGen’s largest market contributing ~70% of group revenues. During FY21, approximately 294
million seedlings were sold in the USA generating revenues of US$36.8 million. ArborGen is the largest
supplier of loblolly pine seedlings in the Southern USA with a market share of approximately 45%. ArborGen
has 8 nurseries and 10 orchards located throughout the USA. The nursery locations are shown below:
LOCATION OF US NURSERIES
ArborGen specialises in the sale of advanced genetics seedlings with an over 80% share of the addressable
MCP market in the US South. It is the only supplier with a portfolio of MCP products that addresses the entire
market. MCP sales are expected to increase substantially over the next few years with increasing supply from
ArborGen’s US orchards and continued demand growth. The following chart depicts the projected growth
in ArborGen’s supply of MCP seeds in the USA from just over 100 million p.a. currently to over 300 million
p.a. through to the 2026 production year:
11
PROJECTED SUPPLY OF MCP SEEDS IN THE USA (MILLIONS OF SEEDLINGS) BY PRODUCTION YEAR
1
MCP and varietals currently comprise ~30% of ArborGen’s total loblolly seedlings sales in FY21, growing to
~40% in FY22. The focus in the US is on increasing the percentage of MCP seedlings used in forest plantings.
3.5.3 Brazil
ArborGen began operations in Brazil in 2004 and in 2013 the company started selling eucalyptus and loblolly
pine seedlings. ArborGen now operates three nurseries in Brazil and has a network of contract producers.
The majority of sales are in eucalyptus products, which are made available through ArborGen’s distribution
network in all of the primary eucalyptus growing regions in Brazil. During FY21 ArborGen sold 65 million
seedlings generating revenues of US$6.0 million. ArborGen’s strategy is to convert the market to products
with superior genetics, as it is doing in the US market.
ArborGen’s eucalyptus product offering comprises advanced eucalyptus products licensed from International
Paper, Gerdau and Vallourec, as well as market clones. ArborGen's own eucalyptus tree improvement
programme covers all key eucalyptus growing areas in Brazil with ArborGen’s own products in the pre-
commercial phase. ArborGen sells its own proprietary pine genetics and licensed genetics from Arauco and
CMPC.
Increasing softwood product exports, new pulp mills, strong demand for eucalyptus based pulp and charcoal
products, and increasing recognition of the value of ArborGen’s proprietary products are all expected to
contribute to sales increases in future years.
LOCATION OF BRAZILIAN NURSERIES
________________________________________________________________________________________________________________________________________________________
1
The chart shows projected seed supply in seedling equivalents, rather than sales. Please note the 2020 year refers to the fiscal year ending
March 2021. The same applies to each other year ie the 2021 year refers to the fiscal year ending March 2022.
0
50
100
150
200
250
300
350
2020202120222023202420252026
12
3.6 Group Financial Performance
ArborGen’s historical financial performance for the financial periods ended 31 March 2019, 2020 and 2021
(FY19 to FY21) is summarised below. The reporting currency is US dollars.
ARBORGEN FINANCIAL PERFORMANCE (US$ MILLIONS)
AS AT 31 MARCH 2019A 2020A 2021A
Seedlings sold - millions
USA - Loblolly pine – OP 155 210 181
USA - Loblolly pine – MCP & varietals 92 90 82
USA – Other seedlings 33 33 31
Total seedlings sold in USA 280 333 294
Brazil seedlings 50 65 65
Australasia seedlings 19 39 32
Total seedlings sold 349 437 391
Change in total seedling sales % - 24% (11%)
Revenue by region
Revenue - USA 36.0 38.7 36.8
Revenue - Brazil 6.1 7.9 6.0
Revenue - Australasia 7.0 10.3 9.9
Total Revenue 49.1 56.9 52.7
Change in revenue % - 16% (7%)
Cost of sales (30.3) (34.7) (31.8)
Gross profit 18.8 22.2 20.9
Gross profit margin % 38.3% 39.0% 39.7%
Administration expenses
2
(9.8) (10.0) (8.8)
Change in fair value of biological assets 0.8 (0.6) (0.1)
Other income - 0.3 0.8
EBITDA 9.8 11.9 12.8
EBITDA margin % 20.0% 20.9% 24.3%
Depreciation of fixed assets (2.9) (3.6) (4.0)
Amortisation of intellectual property (5.8) (5.9) (6.2)
EBIT 1.1 2.4 2.6
One-off items (3.6) (3.9) 2.0
EBIT after one-off items (2.5) (1.5) 4.6
Financing costs (2.2) (2.3) (2.0)
Taxation benefit 0.5 1.1 0.6
Net profit / (loss) (4.3) (2.7) 3.2
Source: ArborGen FY19, FY20 and FY21 Annual Reports.
The following comments are relevant when reviewing the table above:
§
ArborGen’s revenue decreased by US$4.2m, or 7% in FY21, impacted as follows:
- USA (-US$1.9m). The decrease is due to the impact of COVID-19 and severe weather events.
Sawmill closures in early calendar year 2020 resulted in delayed log harvesting and in turn site
preparation activities for seedling planting. Restrictions on migrant labour into the US from Central
America combined with planting crews contracting COVID-19 led to planting labour shortages
________________________________________________________________________________________________________________________________________________________
2
Administration expenses excludes depreciation and amortization.
13
during the planting season. In addition, the effect of hurricanes impacted on site preparation in
some regions.
- Brazil (-US$1.9m). The Brazil operations were materially impacted by COVID-19 and there was an
extended drought season.
- Australasia (-US$0.4m). The Australasian operations experienced a more limited impact from
COVID-19 with continued strong demand for timber and MCP products.
§
The outlook for FY22 by market is summarised below:
- USA. The outlook is for the operations and sales to return to pre-COVID levels with easing migrant
labour restrictions. Adoption of MCP seedlings is expected to grow and ArborGen will be focusing
on growing the proportion of MCP seedlings sold. A ~30% increase in the MCP seedling supply is
expected in FY22. There is strong underlying demand for solid wood products in the US and
structural supply constraints in Canada, the Western USA and Europe driving expansion of sawmill
capacity in the Southern USA.
- Brazil. Sales are expected to grow strongly with orders significantly up on the same time last year.
Positive market drivers are increasing exports, new pulp mills and strong demand for eucalyptus
and charcoal products.
- Australasia. Underlying demand from the forestry sector remains strong with continued focus on
the New Zealand horticulture business.
§
In ArborGen’s annual accounts, depreciation and amortisation costs are included in cost of sales and
administration expenses. Grant Samuel has adjusted the cost of sales and administration expenses in
the table above to exclude depreciation and amortisation expenses.
§
ArborGen is targeting EBITDA for FY22 in the range of US$11.3 to US$11.7 million (previously expected
to be US$13 - 14 million) on a US GAAP basis. Adjusted for one-off items US GAAP EBITDA would be
approximately US$12.0 – 12.4 million. Additional rental income is expected to add a further US$0.5
million on an annualised basis.
One-off items
OVERVIEW OF NON-OPERATING ITEMS (US$ MILLIONS)
AS AT 31 MARCH 2019 2020 2021
1) Government grant income - - 3.7
2) COVID related costs and seedling write-offs - - (1.7)
3) Inventory and varietal cost adjustments - (2.7) -
4) Seedling mortality customer assistance - (1.0) -
5) Transaction costs (1.0) (0.2) -
6) Restructuring expenses (3.1) - -
7) Gain on disposal of fixed assets 0.5 - -
Total Non-Operating Items (3.6) (3.9) 2.0
Source: ArborGen FY21 Annual Report.
ArborGen has recognised the following one-off items between FY19 and FY21:
1. During FY21, ArborGen received US$4.6 million of assistance in the form of Government support grants
in the US, Australia and New Zealand under the various COVID-19 support programmes. Of that cash
received US$3.7 million has been deemed to either meet the threshold for forgiveness under the US
CARES Act Paycheck Protection Program or is a grant and it has been treated as Government Grant
income in FY21. The remaining US$0.9 million is recorded as a deferred grant income in the balance
sheet and should meet the threshold for forgiveness in FY22.
14
2. ArborGen incurred significant costs directly related to COVID-19, primarily due to the cancellation
seedling orders in the US. Sales orders cancelled due to COVID-19 left ArborGen with 25 million
seedlings that had to be destroyed, resulting in a seedling write off of US$1.7 million.
3. A series of extreme weather events had the effect of lowering seed production volumes for the
2018/2019 seed harvest. This lower yield resulted in an abnormally high average cost per pound of
seed produced. This adjustment returned the seed costs to a normal production cost, or standard cost,
per seed. In the previous period approximately 1 million of bareroot varietal seedlings, for sale in FY21,
were lost. As a consequence adjustment costs related to varietal writeoffs of US$0.4 million and
inventory adjustment costs of US$2.3 million were made in FY20.
4. During FY19, the extremely unusual and widespread seedling survival issues occurring throughout the
US South-Eastern region, affected the survival of some seedlings. While ArborGen did not believe this
mortality issue could be attributed to its seedling quality, ArborGen recorded US$1 million as an
expense in FY20 to assist customers to replace lost seedlings.
5. The transaction related cost of US$1.0 million in FY19 and US$0.2 million in FY20, is the expense under
the ArborGen senior management retention plan that was put in place when the remaining 66.7% of
the shares Rubicon did not own in ArborGen Inc. were acquired in June 2017.
6. The US$3.1 million of restructuring expenses in FY19 included severance payments made to former
ArborGen and Rubicon employees totalling US$1.8 million plus US$1.3 million of costs relating to a
settlement reached with the former CEO and CFO which was comprised of the issue of new shares and
cash payments.
7. In FY19, ArborGen recorded a US$0.5 million one-off gain on the disposal of fixed assets.
15
3.7 Group Financial Position
ArborGen’s financial position as at 31 March 2020 and 2021 is summarised below:
ARBORGEN FINANCIAL POSITION (US$ MILLIONS)
AS AT 31 MARCH 2020 2021
Inventories 29.3 34.5
Receivables 10.5 12.2
Payables (13.1) (13.1)
Net working capital 26.7 33.6
Intellectual property 103.8 101.3
Fixed assets 43.5 43.2
Deferred tax (1.8) (1.2)
Net operating assets 172.2 176.9
Net debt
3
(29.6) (27.4)
Other items (0.7) (1.3)
Net operating assets 141.9 148.2
Ratios
Gearing %
4
17.2% 15.5%
Source: ArborGen FY21 Annual Report
The following comments are relevant when reviewing the table above:
§
Inventories relate to seeds and seedlings in both a work in progress and finished goods format.
§
Intellectual property comprises of capitalised development costs. The carrying value of IP is reviewed
annually to determine whether an impairment is required. A 10-year DCF model is used. During FY21
US$3.7 million of development costs were capitalised and US$6.2 million of costs were amortised.
During FY20 the amount capitalised and amortised was US$4.1 million and US$5.9 million respectively.
§
For FY21 of the fixed assets of US$43.2 million approximately US$16.0 million relates to land, US$22.5
million to buildings, US$4.8 million to plant & equipment and -US$0.1 million relates to the right-of-use
asset less lease liabilities. Land is recorded at historical cost.
§
ArborGen had net debt of US$27.4 million as at 31 March 2021 comprising US$33.6 million of bank
borrowings less US$6.2 million of cash. The weighted average interest rate on term debt was
approximately 4.5% in FY21.
________________________________________________________________________________________________________________________________________________________
3
Net debt equals bank debt less cash balances.
4
Gearing equals net debt divided by net operating assets.
16
3.8 Group Cash Flows
ArborGen’s cash flows for FY19 to FY21 are summarised below:
ARBORGEN CASH FLOWS (US$ MILLIONS)
AS AT 31 MARCH 2019 2020 2021
Customer receipts 51.4 55.7 52.5
Payments to suppliers, employees & other (47.3) (50.9) (47.2)
Government grants received - - 4.6
Net operating cash flow 4.1 4.8 9.9
Investment in IP (4.7) (4.1) (3.7)
Net investment in fixed assets (1.9) (5.2) (1.0)
Deferred settlement (10.0) - -
Net investing cash flow (16.6) (9.3) (4.7)
Net drawdown/(repayment) of debt (9.0) 20.5 (3.9)
Repayment of lease liabilities (0.9) (12.6) (1.3)
Interest paid (2.1) (2.5) (2.0)
Net financing cash flow (12.0) 5.4 (7.2)
Net cash from discontinued operation 2.4 - -
Net cash flow (22.1) 0.9 (2.0)
Opening cash 29.0 7.2 7.9
Foreign exchange impacts 0.3 (0.2) 0.3
Closing cash 7.2 7.9 6.2
Source: ArborGen FY20 and FY21 Annual Reports
The following comments are relevant when reviewing the table above:
§
ArborGen’s operating cash flows in FY21 were bolstered by Government grants of US$4.6 million.
§
The investment in IP reflects the cash investment into developing the company’s IP. These costs are
capitalised and amortised by ArborGen.
§
The deferred settlement payment of US$10 million in FY19 related to the acquisition of ArborGen Inc.,
which was settled on 30 June 2018.
17
3.9 Capital Structure and Ownership
ArborGen has approximately 501.2 million shares on issue. As at 28 October 2021, ArborGen had
approximately 5,750 registered shareholders. The following are ArborGen’s largest shareholders as at 11
October 2021:
ARBORGEN - MAJOR SHAREHOLDERS
SHARES (MILLIONS) PERCENTAGE
David Knott 137.7 27.5%
Ranjan Tandon 89.1 17.8%
Accident Compensation Corporation 31.3 6.2%
Irvin Kessler 25.0 5.0%
Subtotal - Top 5 shareholders 283.0 56.5%
Other shareholders 218.2 43.5%
Total 501.2 100.0%
ArborGen Holdings, NZX SPH notices, Computershare registry
§
ArborGen also operates a long term incentive plan, which allows the Board or Remuneration Committee
to grant various equity-based awards (including stock options, restricted stock units and other types of
equity and cash awards) to officers, employees and directors of ArborGen. Restricted Share Units (RSUs)
and cash awards are granted on the basis of meeting performance targets and are distributed over a
two-year period once the RSUs have been awarded.
3.10 Share Price Performance and Liquidity
3.10.1 Liquidity
The following table shows the volume of ArborGen shares traded in the 12 months prior to 28 October 2021:
ARBORGEN - SHARE PRICE HISTORY TO 28 OCTOBER 2021
TIME PERIOD LOW HIGH VWAP VOLUME (000S)
1 month $0.25 $0.31 $0.25 2,360
3 months $0.25 $0.33 $0.30 6,531
6 months $0.17 $0.34 $0.27 18,862
12 months $0.13 $0.34 $0.20 43,445
NZX Company Research
18
3.10.2 Share Price Performance
The share price and trading volume history of ArborGen shares since the minority shareholdings in ArborGen
Inc. were acquired (29 June 2017) is depicted graphically below:
ARBORGEN SHARE PRICE PERFORMANCE (29 JUNE 2017 TO 12 OCT 2021)
ArborGen’s share price during the dates observed ranged between NZ$0.13 (28 October 2020) and NZ$0.34
(16 July 2021). The share price prior to the announcement of the strategic review was NZ$0.22. ArborGen’s
share price against the NZX50 index is shown in the graph below:
ARBORGEN SHARE PRICE PERFORMANCE VERSUS NZX50 CAPITAL INDEX
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
$0.00
$0.05
$0.10
$0.15
$0.20
$0.25
$0.30
$0.35
$0.40
Jun-17
Sep-17
Dec-17
Mar-18
Jun-18
Sep-18
Dec-18
Mar-19
Jun-19
Sep-19
Dec-19
Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Volume (millions)Share price ($)
ArborGen Volume (RHS)ArborGen Holdings Limited Share Pricing (LHS)
1
2
34
5
6
8
7
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
Jun-17
Sep-17
Dec-17
Mar-18
Jun-18
Sep-18
Dec-18
Mar-19
Jun-19
Sep-19
Dec-19
Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
ArborGen HoldingsNZX 50 Capital Index
1
2
3
4
5
6
8
7
19
The following reference points are referred to numerically in the charts above and relate to recent events in
ArborGen’s history:
1) On 29 June 2017 Rubicon acquired the remaining 66.7% stake in ArborGen Inc. from International Paper
Company and WestRock Company.
2) On 1 February 2018 Dorset Management Corporation, Libra Partners NZ LLC and existing TCLP Limited
Partners completed the acquisition of Rubicon’s 44.88% stake in the TCLP. This resulted in ArborGen Inc.
becoming Rubicon’s sole business.
3) On 10 October 2019 Rubicon Limited changed its name to ArborGen Holdings Limited.
4) On 25 March 2020 the New Zealand Government announced a state of national emergency as a result of
COVID-19. ArborGen’s New Zealand nursery and orchard operations were substantially limited for a
period during the first alert level four lockdown.
5) On 9 April 2020 ArborGen announced the continued expansion of its Brazil operations with the lease of
a eucalyptus nursery from with the lease from Brotale.
6) During 2020 one of ArborGen’s substantial shareholders (Perry Corp and Richard C. Perry who previously
held over 6% of ArborGen's shares) engaged in significant selling activity which placed downward
pressure on ArborGen’s share price throughout 2020. This sell down ended in late November 2020.
7) On 11 November 2020 ArborGen announced an agreement with Vallourec S.A. that gave ArborGen the
exclusive rights to develop and commercialise Vallourec’s genetically improved eucalyptus clones in
Brazil.
8) On 30 June 2021 ArborGen announced it had received a confidential, non-binding, indicative, incomplete
and highly conditional proposal to acquire all the shares in, or assets of, ArborGen by way of a scheme
of arrangement or other alternative acquisition structure. Within the same announcement it announced
the strategic review.
20
4 Profile of ArborGen ANZ
4.1 Overview of Products
ArborGen NZ supplies a range of forestry products including:
§
Open Pollinated (OP) and Control Pollinated (CP) radiata seedlings. OP and CP radiata seedlings are
produced from seed purchased from third party suppliers (PF Olsen and ProSeed), and seed produced
from ArborGen NZ’s own two orchards in New Zealand being:
• a CP seed producing orchard in Marlborough (Awatere). Capacity is projected to grow to over 5
million CP seedling equivalents per annum; and
• an elite OP producing orchard in Hawkes Bay (Whirinaki). This orchard is a joint venture with a
large vertically integrated forestry company. Capacity is projected at 4 million seedling equivalents
per annum.
§
Radiata cuttings. ArborGen NZ produces 7-8 million advanced genetics CP cuttings each year produced
from CP seedling mother plants, which are planted to generate cuttings over a 3-year period. Cuttings
expand the availability of advanced genetics as well as provide a more resilient product.
§
Radiata varietals / clones. ArborGen NZ produces varietals on a “make to order” basis for selected
customers. These customers fully fund the three-year production process on a milestone payment basis
and also pay the costs of trials in their estates. This programme is currently building to around 700,000
seedlings annually.
ArborGen NZ also offers other forestry products including douglas fir, eucalyptus and native species. It is also
growing a horticulture business that propagates high value horticultural species including hops and blueberry
varietals. This business leverages expertise in tissue culture and nursery production to rapidly produce elite
germplasm plant material for growers. Services include:
§
quarantine (inspection, testing and surveillance of new plant germplasm imported into New Zealand);
§
stock management and multiplication; and
§
tissue culture maintenance, multiplication and plant propagation.
ArborGen has a shareholder agreement with RPBC providing access to RPBC’s extensive germplasm
repository. If the Proposed Transaction proceeds ArborGen ANZ will retain access to this repository.
ArborGen Australia produces radiata and eucalyptus containerised seedlings from a nursery in Colac, Victoria.
The annual production capacity of ~5.5 million seedlings p.a. is effectively sold out for the next several years
pursuant to customer contracts.
4.2 Customers
Approximately 85% of ArborGen ANZ’s revenues are generated from New Zealand operations, with the
remaining 15% generated from Australia.
ArborGen NZ is the primary supplier to some of the largest forest land owners in New Zealand. Two thirds
of revenues in FY21 were contributed by the top ten customers. ArborGen has well established relationships
with the major forest landowners in New Zealand. Most contracts are on an annual basis. It currently has a
three year rolling supply agreement with one large forest owner and a five-year term supply agreement with
another.
The top ten customers in Australia accounted for 90% of total revenues in FY21. ArborGen has a supply
agreement with Forestry Corporation of New South Wales until 2028 and a five-year agreement with another
customer. The combined revenues from these two customers make up just under 40% of Australian revenues.
21
4.3 Operating Locations
ArborGen NZ operates from six nurseries and two orchards while ArborGen Australia has one nursery in
Victoria. The New Zealand nurseries have a combined productive capacity of ~30 million tree stocks p.a. The
following graphic shows the operating locations in New Zealand and Australia.
ARBORGEN ANZ ORCHARDS AND NURSERY LOCATIONS
The following table provides a breakdown of nursery land area of ArborGen NZ for 2022:
NEW ZEALAND NURSERY LAND AREA
Source: ArborGen NZ Nursery and Orchard Capacity Information
The production plan for 2022 is for 29.1 million treestocks, of which ~68% are bareroot seedlings, ~23% are
cuttings and ~9% are containerised seedlings.
ArborGen NZ is the only seedling provider in New Zealand with operations throughout New Zealand.
ArborGen’s in-house product and technology development is done at ArborGen’s laboratory facilities at Te
Teko.
COLAC
VICTORIA, AU
KAIKOHE
TE TEKO
PUHA
TOKOROA
NELSON
AWATERE
EDENDALE
WHIRINAKI
NURSERY
ORCHARD
TOTAL AREA (HECTARES)
NURSERY TOTAL LAND OWNED LAND
Puha
54.0 22.4
Tokoroa 38.8 32.9
Edendale 71.5 -
Nelson 9.3 7.1
Kaikohe 15.0 15.0
Te Teko - -
Total 188.6 77.4
22
4.4 Market Information
After nearly a decade of slow growth, forestry planting is growing strongly in both New Zealand and
Australia driven by robust market conditions.
4.4.1 New Zealand
In New Zealand growth has been driven by:
§
increased harvesting due to the maturing of forestry estates planted in the 1990’s (i.e. the wall of
wood);
§
strong demand from domestic processing operations and export markets (e.g. China);
§
reforestation and forestation projects to reduce carbon emissions; and
§
the New Zealand Government’s One Billion Trees Programme.
These drivers have led to a major increase in plantings with a doubling in overall Radiata seedling demand
to its current level of ~90 million treestocks planted p.a., plus another 10 - 15 million p.a. of douglas fir,
manuka, eucalyptus and native trees. Radiata pine is used for a range of purposes including structural /
building products, appearance grade products, furniture, plywood and other panels and paper. As at April
2020, New Zealand’s forestry estate was estimated at 1.665 million hectares of planted area.
5
In 2020, total seedling sales in New Zealand were estimated at 91.9 million units comprising 88.4 million of
radiata pine seedlings (~95% of total) and 3.5 million of other varietals (~5% of total). The following graph
shows the historical trend in tree stock sales between 2011 and 2020 based on annual survey data published
by the Ministry of Primary Industries.
6
Seedling sales are expected to grow to ~100 million units for the 2021
season, implying growth of ~9% over the 2020 total.
7
________________________________________________________________________________________________________________________________________________________
5
Wood Availability Forecast from 2021 to 2026 prepared by Margules Groome.
6
Each spring the Ministry of Primary Industries (MPI) undertakes a survey of tree stock sales from commercial forestry nurseries. The
results are aggregated to produce estimates of total national sales and modelled to estimate the planted area by species. In 2020 all 25
commercial forestry nurseries completed the survey and 10 nurseries undertaking sales of manuka seedlings also completed the survey
(some of which were also commercial forestry nurseries).
7
Ministry of Primary Industries Annual Tree Stock Survey 2020.
23
HISTORICAL TREND IN TREE STOCK SALES IN NEW ZEALAND (MILLIONS OF SEEDLINGS)
Source: Ministry of Primary Industries Annual Tree Stock Surveys 2011 to 2020.
Advanced genetics have been available in New Zealand for much longer than in the USA. There has been
greater adoption of higher yielding CP products which has been driven by customers understanding the
value gains from advanced genetics seeds, the available supply of advanced genetics and ownership of
New Zealand forests, with large sophisticated owners. In FY21 advanced genetics sales comprised over
80% of ArborGen ANZ’s radiata pine sales volume. The trend in New Zealand has been an increasing
focus on CP seedlings.
The following graph shows the historical trend in the planting of seedlings between new plantings and
replanting of existing trees over the past 30-year period in New Zealand. This graph illustrates the high
levels of new planting that occurred during the 1990s. As these trees mature and are harvested this is
likely to create a strong demand for seedlings to replant these forests.
ESTIMATED AREAS OF NEW PLANTING AND REPLANTING IN NEW ZEALAND (MILLIONS OF SEEDLINGS)
Source: Ministry of Primary Industries Annual Tree Stock Survey Data.
58.9
64.6
48.5
47.2
45.8
49.3
48.0
56.6
84.0
88.4
67.6
72.5
54.1
50.8
49.5
52.7
51.3
59.9
88.8
91.9
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
2011201220132014201520162017201820192020
Radiata pineOther varietals
0
20
40
60
80
100
120
199119921993199419951996199719981999200020012002200320042005200620072008200920102011201220132014201520162017201820192020
Millions of Seedlings
New plantingReplanting
24
Outlook
The Wood Availability Forecast for 2021 to 2060
8
shows strong harvest volumes are expected during the
2020s as the trees planted during the 1990s reach maturity and are harvested. The Wood Availability
Forecast contains four scenarios for the harvesting of radiata pine. The following graph depicts these
profiles:
NEW ZEALAND RADIATA PINE HARVEST PROFILES TO 2060 (MILLIONS M
3
)
Scenario 1 shows all forests in the small-scale owners’ estate are assumed to be harvested at the regional
target rotation ages. The fluctuations in the total volume harvested reflect the variations in the age-class
distribution of the small-scale owners’ estate. Changes in annual supply levels of this magnitude are
unlikely to occur because of market and logistical constraints.
Scenario 2 is based on a long-term sustainable harvest of 32 million m
3
per annum. For small-scale owners’
estates this would mean that trees are harvested at rotation ages significantly higher than the average
target age of ~28 years during the 2030’s.
Under Scenario 3 the total harvested wood volume increases over the next 4 years to around 39 million
m
3
per annum. This is driven by the harvesting of small-scale owners’ resources.
Under Scenario 4 the target harvest age is extended by two years.
Scenarios 3 and 4 are most likely and indicate sustained higher levels of harvesting activity through the
period until 2030.
________________________________________________________________________________________________________________________________________________________
8
MPI Wood Availability Forecast for 2021 to 2060.
0
10
20
30
40
50
60
70
2021202220232024202520262027202820292030203120322033203420352036203720382039204020412042204320442045204620472048204920502051205220532054205520562057205820592060
Millions of Cubic Metres of Wood
Scenario 1Scenario 2Scenario 3Scenario 4
25
4.5 Financial Performance
ArborGen ANZ historical financial performance FY19 to FY21, together with the revised forecast for FY22 is
summarised below. All figures below are in New Zealand dollars:
ARBORGEN ANZ FINANCIAL PERFORMANCE (NZ$ MILLIONS)
Source: ArborGen ANZ Management Accounts for FY19 to FY21 and Revised Forecast for FY22.
The following comments are relevant when reviewing the table above:
§
The significant growth in sales in FY20 was driven by the New Zealand Government’s One Billion Trees
Programme. Sales growth in FY22 is supported by a growing forestry and carbon market. In particular
management believes tree stock market demand will remain at its current very high levels over the next
several years. Forest harvesting is now occurring as a result from the late 1980s to mid-1990s planting
boom and is driving demand for replanting.
§
While demand has been and is expected to remain high, ArborGen ANZ faces supply challenges.
Specifically, the FY22 revised forecast is impacted by the following:
- ArborGen ANZ has had production/land utilisation issues resulting in lower tree stock yields than
previous years. ArborGen ANZ’s FY21 and FY22 crop available for sale was lower than expected
due to prior year higher nursery utilisation or planting levels than optimum resulting in poorer
seedling yields. Initiatives are in place to minimize this risk going forward, including not planting
beyond optimum nursery capacities.
- ArborGen NZ has seen a reduction in internally produced CP seed from ArborGen’s own orchards,
as well as a reduction in third party seedling supply. The consequence is that there has been a
much lower proportion of CP (i.e. higher value) seedling sales in FY22 when compared with FY21.
There has also been a significant increase in CP seed costs in FY22.
§
The forecast decrease in gross margin in FY22 is largely impacted by an unfavourable product mix due
to ArborGen ANZ’s production issues for higher margin CP seed. An increase in labour costs has also
YEAR END MARCH
2019A 2020A 2021A 2022F
Units volumes (millions)
New Zealand – CP 12.7 16.4 18.3 11.1
New Zealand – OP & Other 6.4 17.9 8.6 15.2
New Zealand 19.1 34.3 26.9 26.3
Australia 4.0 4.4 5.1 5.5
Total units sold 23.0 38.7 31.9 31.8
Change in volume sold % 68% (18%) -%
Total revenue 10.4 15.7 14.9 14.5
Change in revenue % 52% (5%) (3%)
Cost of revenue (7.7) (10.2) (10.5) (10.3)
Gross profit 2.7 5.6 4.4 4.1
Gross margin % 26% 35% 29% 29%
Operating expenses (1.0) (1.5) (1.3) (1.4)
Other income - - 0.2 -
EBITDA 1.7 4.0 3.2 2.7
EBITDA margin % 16.1% 25.7% 21.5% 18.9%
Depreciation & Amortisation (0.6) (0.5) (0.6) (0.8)
EBIT 1.0 3.5 2.6 2.0
26
been a factor resulting in a decrease in the gross margin in FY22. A recovery in CP seed production is
expected following recent operational changes, however the benefits of this will not be seen for several
years.
§
Other income in FY21 relates to COVID-19 related grants net of one-off costs.
27
4.6 Financial Position
ArborGen ANZ’s financial position as at 31 March 2019, 2020 and 2021 and as at 30 September 2021 is
summarised below:
ARBORGEN ANZ FINANCIAL POSITION (NZ$ MILLIONS)
AS AT MAR 2019 MAR 2020 MAR 2021 SEP 2021
Inventories 8.7 9.1 10.6 7.5
Deferred revenue (4.7) (3.2) (4.3) (1.6)
Other working capital items (0.6) (1.0) (0.3) (0.7)
Net working capital 3.4 4.9 6.0 6.7
Property, plant & equipment 12.6 11.2 13.1 13.0
Other assets 1.7 1.6 1.6 1.7
Net operating assets 17.7 17.7 20.6 21.4
Source: ArborGen ANZ Management Accounts
The following comments are relevant when reviewing the table above:
§
ArborGen ANZ’s net working capital follows a cycle during the year reflecting the planting season for
new trees. Net working capital is highest during the winter period of June to August and lowest in the
summer months of December to February. The following chart shows the trend in ArborGen ANZ’s net
working capital between April 2020 and September 2021. The average net working capital over the 12
months to September 2021 was NZ$6.4 million.
ARBORGEN – TREND IN NET WORKING CAPITAL (NZ$ MILLIONS)
§
Working capital comprises inventories, deferred revenue, debtors, creditors and accruals.
§
Inventories primarily consist of finished goods (plant material and seeds) and work in progress (i.e.
seedlings and cuttings). Inventories typically reduce over the June – August period each year as sales
are made. This coincides with an increase in accounts receivable causing net working capital to increase.
In FY22 inventory also dropped in September due to COVID-19 lockdowns delaying lifting activities.
§
Deferred revenue reflects advance payments from customers for trees to be delivered in the future.
The majority of customers typically pay approximately 40% in advance with the remainder being paid
upon delivery.
§
As at 31 March 2021, the total cost of property, plant and equipment was NZ$15.2 million consisting
of land (NZ$6.1 million), buildings (NZ$4.4 million), machinery and equipment (NZ$3.7 million) and
other assets (NZ$1.0 million). Total depreciation was NZ$2.2 million. The book value of land represents
the cost price. The latest Council capital valuations for the land, building and improvements is NZ$14.3
million.
5.6
6.4
8.3
7.7
7.1
6.0
5.5
4.9
5.5
5.0
4.7
6.0
6.2
7.2
9.0
8.6
7.6
6.7
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Apr-20
May-20
Jun-20
Jul-20
Aug-20
Sep-20
Oct-20
Nov-20
Dec-20
Jan-21
Feb-21
Mar-21
Apr-21
May-21
Jun-21
Jul-21
Aug-21
Sep-21
28
§
Other assets largely comprise of mother trees which are capitalised when they are planted as well as
orchard trees. The cost of the mother trees is then amortised as cuttings are taken from the trees.
4.7 CP Production Issues & Forecast
ArborGen ANZ produces CP seeds for internal use at its seed orchards at Awatere, Marlborough. CP seed is
produced from the pollination of flowers on ‘mother’ trees with selected pollen from ‘father’ trees. Bags are
placed over the flowers immediately before they become receptive to pollination. After two and a half to
three years the resulting cones are harvested and the seed extracted. It takes a further year for the seedlings
to be produced and sold with seedling sales recognised a year after seed is sown in the nurseries. For
example, flowers pollinated in June/July 2018, the cones are harvested in Oct/Nov 2020 and the seed is
extracted in early-mid 2021. The seedling would be sold in 2022 once grown and recognised in sales for the
financial year ending 31 March 2023.
During the 2017 to 2019 pollination years ArborGen experienced issues with both the level of pollination
activity on the Awatere orchard and the level of output of cones and seeds harvested. From the beginning
of the 2020 pollination season, ArborGen took over management of the Awatere orchard from a third party.
This resulted in a significant increase in the pollination activity with the number of bags used in the pollination
process increasing from 50k in 2019 to 162k in 2020. Pollination activity was lower in the 2021 pollination
season compared with 2020 with approximately 127k bags being used, however this is above the long-term
average of ~70k bags. The goal is that with higher pollination activity cone and seed output will increase
proportionally. However, it will only become evident in Oct/Nov 2022 whether the strategy of boosting
pollination has the desired impact of increasing output. The following chart shows the historical trend in the
volume of seed produced (as measured in kgs) for the 2008 to 2018 pollination seasons. It can be seen that
the seed output in both 2017 and 2018 is approximately 110 kgs. The number of cones collected from the
2019 pollination season, which is 28% down on the 2018 season suggests that seed production in 2021 will
also be low and likely below 100 kgs. Each kilogram of seed produces ~17,500 seedlings (on average).
Therefore ~110kg of seed translates to ~1.9 million seedlings produced.
CP SEED PRODUCED BY POLLINATION SEASON (KILOGRAMS)
Because of ArborGen ANZ’s CP production issues, the business has been unable to meet the market demand
for CP seedlings. The low production of CP seed has also increased CP costs as orchard costs are spread
across a lower volume of seed. The high market demand for CP seed has also meant that ArborGen has not
been able to secure sufficient third party supply to grow seedlings to meet the market demand.
ArborGen ANZ management forecast that if the production issues are resolved then the Awatere orchard can
return to producing sufficient seed to support seedling sales in the order of 5.0 million seedlings p.a.
214
562
446
396
207
255
229
234
212
110 109
-
100
200
300
400
500
600
20082009201020112012201320142015201620172018
Kilograms of CP Seed Produced
29
4.8 Cash Flow Projections
ArborGen ANZ management have prepared cash flow projections to March 2030. These reflect the recovery
in CP seed production as described in section 4.7 above. Grant Samuel has used these cash flow projections
as part of its discounted cash flow analysis in section 5.
The following comments are relevant in relation to ArborGen ANZ’s forecast cash flow projections:
§
Total seedling sales are forecast to remain stable at 33.3 million seedlings per year between FY24 to
FY30. The number of CP seedlings and cuttings sold recovers to a level 13.6 million units in FY25 as
production at the Awatere seed orchard recovers, and volumes range between 13.9 million to 14.2
million units p.a. between FY26 and FY30.
§
The size of the markets in which ArborGen ANZ operates is assumed to remain consistent at
approximately 100 million seedlings planted in New Zealand each year. ArborGen ANZ’s market share
is forecast to remain stable at ~30% in New Zealand, ~10% in Australia for pine and 2% for other
hardwood species.
§
Gross margins are forecasted to improve from FY25 onwards. This is attributable to an improved sales
mix from CP seedlings which earn significantly higher margins and increased internal CP seed
production (lowering unit seed costs per seedling).
§
Operating expenses are forecasted to remain relatively stable at NZ$1.7 million to NZ$2.0 million p.a.
Operating expenses include NZ$200k p.a. for additional overheads that are expected to be incurred by
a new private owner including ERP licensing costs and governance (i.e. director) expenses.
§
Capital expenditure is forecasted to be slightly higher than depreciation until FY26 at which point these
are assumed to be equal. No orchard or nursery expansions or acquisitions are forecast, which is
consistent with seedling sales remaining constant.
§
Depreciation & amortisation have together been maintained at NZ$0.7 million, with capex
approximating depreciation and amortisation in the later years.
30
5 Valuation of ArborGen ANZ
5.1 Preferred Methodology
5.1.1 Overview
Grant Samuel’s valuation of ArborGen ANZ has been estimated on the basis of fair market value as a going
concern, defined as the estimated price that could be realised in an open market over a reasonable period
of time assuming that potential buyers have full information. The valuation of ArborGen ANZ is appropriate
for the acquisition of the company as a whole and accordingly incorporates a premium for control. The value
is in excess of the level at which, under current market conditions, shares in ArborGen ANZ could be expected
to trade on the share market. Shares in a listed company normally trade at a discount of 15% - 25% to the
underlying value of the company as a whole, but the extent of the discount (if any) depends on the specific
circumstances of each company.
The most reliable evidence as to the value of a business is the price at which the business or a comparable
business has been bought and sold in an arm’s length transaction. In the absence of direct market evidence
of value, estimates of value are made using methodologies that infer value from other available evidence.
There are four primary valuation methodologies commonly used for valuing businesses:
§
capitalisation of earnings or cash flows;
§
discounting of projected cash flows;
§
industry rules of thumb; and
§
estimation of the aggregate proceeds from an orderly realisation of assets.
Each of these valuation methodologies has application in different circumstances. The primary criterion for
determining which methodology is appropriate is the actual practice adopted by purchasers of the type of
business involved. A detailed description of each of these methodologies is outlined at Appendix C.
5.1.2 Approach for ArborGen ANZ
Grant Samuel has placed primary reliance on the discounted cash flow (DCF) approach when valuing
ArborGen ANZ. This is due to the availability of a long term forecast from management reflecting changes in
future production based on the current orchard and nursery operations. The discounted cash flow approach
allows the impact of recovering CP volumes to be reflected in the valuation. The valuation range using the
DCF approach has been cross checked against the multiples implied by transactions involving agricultural
businesses in New Zealand and Australia and listed agricultural businesses with operations in New Zealand
and Australia (i.e. the capitalisation of earnings approach).
31
5.2 Summary
Grant Samuel has valued ArborGen ANZ on an ungeared basis (i.e. enterprise value) in the range NZ$20.7
million to NZ$23.0 million using a DCF valuation approach. The valuation range compares to a purchase
price of NZ$22.25 million. The valuation is summarised below:
ARBORGEN ANZ – VALUATION SUMMARY (NZ$ MILLIONS)
VALUE RANGE (NZ$ MILLIONS)
LOW HIGH
Post-tax discount rate for valuation purposes (%) 12.5% 11.5%
Terminal growth rate of free cash flows (%) 1.5% 1.5%
Sum of discounted cash flows to March 2030 12.0 12.5
Terminal value of cash flows from April 2030 onwards 8.7 10.5
Discounted cash flow valuation 20.7 23.0
The Proposed Transaction is targeted to settle at the end of November 2021. This represents a point in
ArborGen’s working capital cycle which is below the average level for the year. As a consequence, a NZ$450k
working capital adjustment amount has been agreed to the purchase price, reducing the consideration paid
to approximately NZ$21.8 million.
A value range has been attributed to ArborGen ANZ’s business operations. This valuation range is an overall
judgement having regard to:
§
ArborGen’s long term cash flow forecasts to March 2030 as prepared by management;
§
the risks associated with the achievement of the cash flow forecasts;
§
the attractiveness of the ArborGen ANZ business;
§
the outlook for the New Zealand and Australian forestry sector; and
§
the earnings multiples implied by transactions involving agricultural businesses and the earnings
multiples implied by listed agricultural businesses.
5.3 Discounted Cash Flow Assumptions
Projected Cash flows
ArborGen NZ’s forecast cash flows to March 2030 as discussed in section 4.8 have been used as the basis for
the cash flow projections.
Discount rate and terminal growth rate
The cash flows are discounted to a present value (i.e. today’s dollars) using a discount rate, which reflects
the risk associated with the cash flow stream. The discount rate is not observable and must be inferred from
other historical data. None of this data is particularly reliable so estimates of the discount rate involve a
substantial element of judgment. The capital asset pricing model (CAPM) is the most widely accepted and
used methodology for determining the cost of equity capital. While the theory underlying CAPM is rigorous,
the practical application is subject to substantial shortcomings and limitations. There is a tendency to regard
the discount rates calculated using CAPM as inviolate, however, a mechanistic application of formulae
derived from the theory can obscure the reality that there is no “correct” discount rate. Valuation is an
estimate of what real world buyers and sellers of assets would pay and must therefore reflect criteria that
will be applied in practice. For the purposes of valuing ArborGen ANZ, Grant Samuel has utilised CAPM and
has calculated a discount rate range of 11.5-12.5%.
32
The DCF valuation also involves a terminal value assumption for the cash flows after the explicit cash flow
forecast period (i.e. for the cash flows post FY30). Grant Samuel has assumed that the terminal year cash
flow grows in perpetuity at a rate of 1.5% p.a.
5.4 Qualitative Factors
The valuation reflects the strengths and weaknesses of ArborGen ANZ and takes into account the following
factors:
§
ArborGen ANZ is a very different business to the United States and Brazil businesses. ArborGen ANZ is
a relatively small mature business by comparison and has fewer growth opportunities. MCP seedlings
have been available in Australia and New Zealand for many years, hence the market is well established.
By contrast, the United States and Brazil have had limited exposure to MCP seedlings and there is
greater opportunity for earnings growth as more of these superior quality seedlings are introduced to
those markets. Accordingly, on a capitalisation of earnings basis the ANZ business would be expected
to transact at lower multiples than the United States and Brazil businesses.
§
ArborGen ANZ is subject to Australia and New Zealand weather and environmental conditions.
ArborGen ANZ has two orchards and seven nurseries. If a severe weather event were to occur this could
impact one nursery reducing ArborGen ANZ’s ability to produce seedlings. Events such as droughts are
common in New Zealand and Australia and in the recent past the impact of severe droughts in 2019
resulted in seed production falling significantly in FY21. While unlikely, damage to or destruction of one
of the two ArborGen ANZ orchards would significantly impact earnings across multiple years.
§
ArborGen ANZ has a ~30% share of NZ Radiata market and ~10% share of the Australian Radiata market,
with strong and enduring customer relationships. The market position in New Zealand is attractive.
§
In the New Zealand market, the demand for radiata seedlings is currently strong driven by replanting of
forests established in the late 1990s, which are now being harvested. In addition, central and local
government policies and climate change are adding to the demand for existing forests to be replanted
and for the establishment of new forests.
§
ArborGen’s New Zealand and Australian nurseries are currently operating at their maximum volume.
Additional volume will only be possible if there is new capital expenditure. However, seedling
production is expected to increase in the medium term.
§
ArborGen ANZ is continuing to grow its horticultural species, leveraging its expertise to produce elite
germplasm plant material for growers.
§
Gross margins are forecast to increase from 28.6% in the current financial year to 33.5% in the year
ending 31 March 2025 and remaining at this level for the foreseeable future. This is partly attributable
to ArborGen ANZ’s expected recovery of in-house CP seed production.
33
5.5 Earnings Multiple Analysis
5.5.1 Implied multiples
Grant Samuel’s valuation range of NZ$20.7 million to NZ$23.0 million implies the following multiples:
ARBORGEN ANZ – IMPLIED VALUATION PARAMETERS
VARIABLE
(NZ$ MILLION)
IMPLIED MULTIPLES
LOW HIGH
Value range ($million) 20.7 23.0
Multiple of Adjusted EBITDA (times)
Year ended 31 March 2021 – actual $2.5m 8.3x 9.2x
Year ending 31 March 2022 – revised budget $2.5m 8.3x 9.2x
Multiple of Adjusted EBIT
10
(times)
Year ended 31 March 2021 – actual $1.8m 11.5x 12.8x
Year ending 31 March 2022 – revised budget $1.8m 11.5x 12.8x
Multiple of ungeared NTA (times)
Book value as at 30 September 2021 $21.4m 0.9x 1.1x
Adjusted book value as at 30 September 2021 $24.9m 0.8x 0.9x
Operating ArborGen ANZ as a standalone business EBITDA has been adjusted for approximately NZ$200k p.a.
of expenses that are expected to be incurred by the Purchaser including ERP licensing costs, governance (i.e.
director) expenses.
While Grant Samuel has not valued ArborGen ANZ on a realisation of asset basis we note that:
§
as at 30 September 2021 ArborGen ANZ had unaudited net operating assets of NZ$21.4 million
comprising NZ$6.7 million in net working capital and non-current assets with a book value of NZ$14.7
million.
§
If ArborGen ANZ’s owned land and building assets were recorded at the latest Council Valuation of
NZ$14.3 million and net working capital is assumed to be equal to the average level NZ$6.4 million, then
the net operating assets would be NZ$24.9 million.
An explanation regarding interpreting the above multiples is included at Appendix D. The implied multiples
are consistent with multiples implied by the share prices of listed agricultural companies and recent
transactions in the agricultural/aquacultural sector in New Zealand and Australia as set out below.
________________________________________________________________________________________________________________________________________________________
10
Adjusted EBIT means Adjusted EBITDA less depreciation & amortisation expenses.
34
5.5.2 Transaction Evidence
The following table sets out the EBITDA and EBIT implied by transactions involving the acquisition of agri-
businesses within New Zealand and Australia since the beginning of 2011.
TRANSACTION EVIDENCE
DATE TARGET PURCHASER
IMPLIED
ENTERPRISE
VALUE
(MILLIONS)
EBITDA
MULTIPLE (TIMES)
EBIT
MULTIPLE (TIMES)
HISTORICAL FORECAST HISTORICAL FORECAST
Pending Arborgen ANZ Purchaser NZ$22.25 8.9 8.9 12.4 12.4
Jun 21 2PH Farms Costa A$200 n.a. 6.9 n.a. 9.3
Mar 19 Aongatete Coolstores SEEKA NZ$25 n.a. 6.3
11
n.a. n.a.
Aug 18 PGG Wrightson Seeds DLF Seeds NZ$444 12.5 12.3 15.0 15.7
Jan 17 Allied Pinnacle Pacific Equity Partners A$435 10.0 n.a. 16.6 n.a.
Aug 15 BFP SEEKA A$22 n.a. 6.1
12
n.a. n.a.
Apr 14 Apollo Apples Turners & Growers NZ$44 n.a. n.a. 7.0 n.a.
Mar 12 Turners & Growers BayWa NZ$307 7.0 n.a. 12.1 n.a.
Jun 11 Scales Direct Capital NZ$174 6.0 4.8 8.6 6.4
Median 8.5 6.3 12.1 9.3
Average 8.9 7.3 11.9 10.5
Grant Samuel analysis
13
(see Appendix A)
Grant Samuel has been unable to identify recent transactions globally for businesses that are involved in the
production of tree seedlings where multiples were able to be calculated. In the absence of this evidence, it
is necessary to review transactions involving agri-businesses in New Zealand and Australia. As shown in the
table above these transactions involve target companies of varying size and types of operation. The
transaction sizes range between ~NZ$25 million to ~NZ$450 million and span from 2011 and 2021. Caution
should therefore be exercised when comparing these transactions to the sale of ArborGen ANZ.
The following graphs compare the EBITDA and EBIT multiples implied by the ArborGen ANZ transaction to
the multiples implied by enterprise values for each of the transactions. Where possible Grant Samuel has
shown forecast multiples as this provides a better representation of the future earnings and cash flows of
the business being acquired.
________________________________________________________________________________________________________________________________________________________
11
The EBITDA multiple of 6.3 times represents the midpoint estimate for this transaction.
12
The EBITDA multiple of 6.1 times represents the midpoint estimate for this transaction.
13
Grant Samuel analysis based on company announcements and, in the absence of company published financial forecasts, brokers’ reports.
Where company financial forecasts are not available, the median of the financial forecasts prepared by a range of brokers has generally
been used to derive relevant forecast value parameters. The source, date and number of broker reports utilised for each company depends
on analyst coverage, availability and recent corporate activity.
35
ARBORGEN ANZ VERSUS TRANSACTION EVIDENCE - IMPLIED MULTIPLES OF EBITDA
ARBORGEN ANZ VERSUS TRANSACTION EVIDENCE - IMPLIED MULTIPLES OF EBIT
The EBITDA and EBIT multiples implied by the ArborGen ANZ transaction fall within the range of multiples
implied by transactions involving agri-businesses in New Zealand and Australia.
The more recent transactions have tended at be at higher multiples reflecting the increase in multiples for
listed investments since 2011. The transactions with the highest multiples involve the sale of large businesses
- PGG Wrighton’s seeds business to DLF Seeds in 2018 (at 12.3 times forecast EBITDA and 15.7 times forecast
EBIT) and the purchase by Pacific Equity Partners by Allied Mills in 2017 (at 10 times historical EBITDA and
16.6 times historical EBIT). Larger businesses tend to transact at higher multiples than small businesses as
they are more attractive to buyers and also attract more buyers. Large companies also tend of have more
diversified earnings streams than small companies.
New Zealand kiwifruit company Seeka features in two transactions above with the purchase of Aongatete
Coolstores in 2019 for NZ$25m and the purchase of Bunbartha Fruit Packers in 2015 for A$22 million. The
midpoint EBITDA multiples for these transactions were 6.3 and 6.1 times respectively. The transaction sizes
are more comparable to ArborGen ANZ at NZ$22.25 million. The ArborGen ANZ transaction implies a forecast
EBITDA multiple of 8.9 times which is above the EBITDA multiples implied by both of these transactions.
Grant Samuel observes that the multiples implied by the purchase price for ArborGen ANZ is relatively
consistent with transaction evidence.
Descriptions of each transaction are provided in Appendix A.
8.9
4.8
6.1
6.3
6.9
7.0
10.0
12.3
0
2
4
6
8
10
12
14
ArborGen ANZ
(2021)
Scales / Direct
Capital (2011)
Bunbartha Fruit
Packers / Seeka
(2015)
Aongatete
Coolstores /
Seeka (2019)
2PH Farms /
Costa (2021)
T&G / BayWa
(2012)
Allied Mills /
PEP (2017)
PGG Wrightson
Seeds / DLF
(2018)
12.4
6.4
8.1
9.3
12.1
15.7
16.6
0
2
4
6
8
10
12
14
16
18
ArborGen ANZ
(2021)
Scales / Direct
Capital (2011)
Apollo
Apples/T&G
(2014)
2PH Farms /
Costa (2021)
T&G / BayWa
(2012)
PGG Wrightson
Seeds / DLF
(2018)
Allied Mills / PEP
(2017)
36
5.5.3 Sharemarket Evidence
With the exception of ArborGen, Grant Samuel has been unable to identify any listed companies that focus
on the production of tree seedlings or forestry genetics. Grant Samuel has therefore examined companies
that operate in similar industries, are exposed to similar economic factors and/or operate within Australia
and New Zealand. Accordingly, Grant Samuel has primarily examined mature listed agricultural and
aquaculture businesses that are based in Australia and New Zealand.
The following table sets out the implied EBITDA and EBIT multiples for a range of listed comparable
companies:
14
SHAREMARKET RATINGS OF SELECTED LISTED COMPANIES
15
ENTITY
MARKET
CAPITALISATION
(NZ$ MILLIONS)
EBITDA MULTIPLE (TIMES)
16
EBIT MULTIPLE (TIMES)
17
HISTORICAL FORECAST HISTORICAL FORECAST
ArborGen ANZ (offer price) NZ$22.25 8.9 8.9 12.4 12.4
ArborGen Holdings 145 9.5 7.8 29.7 17.5
Costa Group 1,495 11.5 10.4 18.7 18.8
Delegat Group 1,483 16.4 16.4 19.5 19.8
GrainCorp
18
1,460 12.0 n.m. 25.7 n.m.
Scales Corporation 772 12.3 11.9 15.3 14.7
Tassal Group 760 10.4 7.8 16.0 11.5
Sanford 478 11.3 13.7 18.3 31.6
Ridley Corporation 450 8.4 7.7 13.8 11.3
Ricegrowers 390 12.3 7.8 23.4 12.9
PGG Wrightson 300 6.9 10.5 8.3 14.2
Seeka 188 8.4 7.7 13.3 13.6
Foley Wines 105 10.6 n.a. 15.9 n.a.
Median
11.3 10.4 16.0 14.2
Average
11.0 10.4 17.1 16.4
Grant Samuel analysis (see Appendix B), n.a. means not available. n.m. means not meaningful.
A description of each of the companies above is set out in Appendix B. A graphic representation of the
EBITDA and EBIT multiples implied by the share prices of comparable companies is set out in the chart below:
________________________________________________________________________________________________________________________________________________________
14
Grant Samuel analysis based on data obtained from S&P Capital IQ, company annual reports and announcements and broker forecasts.
Where broker forecasts are used, the median of the financial forecasts has generally been used to derive relevant forecast value
parameters. The source, date and number of broker reports utilised for each company depends on analyst coverage, availability and
recent corporate activity.
15
The companies selected have a variety of year ends. The financial information presented in the Historic column corresponds to the most
recent actual annual result. The forecast column corresponds to the forecast for the subsequent year.
16
Represents gross capitalisation (that is, the sum of the market capitalisation adjusted for minorities, plus borrowings less cash as at the
latest balance date) divided by EBITDA.
17
Represents gross capitalisation divided by EBIT.
18
EBIT and EBITDA provided by broker forecasts did not reflect the sale of GrainCorp’s Australian bulk liquid storage terminals business and
have been excluded from the analysis.
37
EBITDA MULTIPLES OF SELECTED LISTED COMPANIES
EBIT MULTIPLES OF SELECTED LISTED COMPANIES
Grant Samuel analysis (see Appendix B), * represents forecast EBITDA multiple.
When observing the table above the following points should be noted:
§
The multiples are based on closing share prices as at 4 October 2021. The share prices and therefore
the multiples, do not include a premium for control. Shares in a listed company normally trade at a
discount to the underlying value of the company as a whole.
§
The companies selected have varying financial year ends. The data presented above is the most recent
annual historical result plus the subsequent forecast year.
§
The EBITDA and EBIT multiples implied by the Proposed Transaction fall within the range of the listed
mature agri-business companies examined.
8.9
6.9
8.4
8.4
9.5
10.4
10.6
11.3
11.5
12.0
12.3
12.3
0
2
4
6
8
10
12
14
Arborgen
ANZ
PGG
Wrightson
Ridley
Seeka
ArborGen
Holdings
Tassal
Foley
Sanford
Costa
GrainCorp
Scales
Ricegrowers
Arborgen ANZPeer average
12.4
8.3
13.3
13.8
15.3
15.9
16.0
17.5
18.3
18.7
19.5
23.4
25.7
0
5
10
15
20
25
30
Arborgen ANZ
PGG
Wrightson
Seeka
RidleyScales
Foley
Tassal
ArborGen
Holdings*
Sanford
Costa
Delegat
Ricegrowers
Graincorp
Arborgen ANZPeer average
38
§
There are considerable differences between the operations and scale of the comparable companies
when compared with ArborGen ANZ. In addition, care needs to be exercised when comparing multiples
of New Zealand companies with internationally listed companies. Differences in regulatory
environments, share market and broader economic conditions, taxation systems and accounting
standards hinder comparisons.
§
Each of the above companies has adopted IFRS16.
19
Grant Samuel has calculated trading multiples on
a pre-IFRS16 basis. A pre-IFRS16 approach:
• enables consideration of trends in each business (in particular EBITDA and EBIT margins) on a
consistent basis; and
• is consistent with the comparable transaction multiples, the vast majority of which took place prior
to the introduction of IFRS16 (from January 2019).
ArborGen ANZ’s long term forecasts have been prepared on a pre-IFRS16 basis and therefore
adjustments to the cash flow projections were not required.
§
The data presented for each company is the most recent annual historical result and the forecast is an
average of earnings forecast from available broker reports. The financial data has not been adjusted to
align the year end for each company.
§
While the above companies have a significantly different operations they are generally trading at
multiples between 8.4 times and 12.3 times historical EBITDA.
The data shows a range of trading multiples, largely reflecting the characteristics and market exposures of
different businesses:
§
The larger listed companies tend to trade at higher multiples. The largest listed companies examined
are Delegat Group Limited (Delegat), GrainCorp Limited (GrainCorp) and Costa Group Holdings Limited
(Costa). The market capitalisations of these companies are each around NZ$1.5 billion. As shown above
all of these companies are trading at multiples towards the top end of the range of companies.
§
PGG Wrightson is trading at lower multiples of 6.9 times EBITDA and 8.3 times historical EBIT. Having
sold its seeds business in 2018, the company has operations in rural distribution, livestock trading and
agency trading and other rural services. These are all mature businesses with limited growth
opportunities which contribute to the company trading at lower multiples.
Grant Samuel has considered but has excluded from its analysis large listed companies that engage in forestry
management and ownership such as CatchMark Timber Trust, Inc., PotlatchDeltic Corporation and
Weyerhaeuser Company. These companies are much larger than ArborGen ANZ and forestry genetics is
either not a part of their business or is not a significant focus. While Weyerhaeuser is a strong operator in
the forestry genetics industry it is one of the largest owners of timberlands and operates as a real estate
investment trust. In addition, its seedling operations are primarily for in-house production.
Other competitors in the United States (such as IFCO Seedlings PRT Growing Services) are not listed and
insufficient information is available to make comparisons with ArborGen ANZ.
________________________________________________________________________________________________________________________________________________________
19
The impact of IFRS 16 has been reversed by excluding lease liabilities from net borrowings in determining the enterprise value and
adjusting broker forecasts of EBITDA and EBIT (to include estimated lease payments using lease depreciation and lease interest as a proxy)
to the extent that brokers appear to have adjusted forecast earnings for the impact of IFRS16. It should be noted that IFRS16 is an
accounting concept and its application does not have any impact on the cash flow of a business or a company. A valuation prepared on a
post IFRS16 basis should give the same result as a valuation prepared on a pre-IFRS16 basis provided that all elements of the valuation
(earnings, multiples, net debt) are determined and applied on a consistent basis.
39
6 Merits of the Proposed Transaction
6.1 Evaluation of the Sale Price and Terms of the Proposed Transaction
In Grant Samuel’s opinion the full underlying value of ArborGen ANZ is in the range of NZ$20.7 million to
NZ$23.0 million as set out in section 5. The full underlying value is the price a person or entity would be
expected to pay to acquire ArborGen ANZ as a whole and, accordingly, includes a premium for control. The
Consortium has offered to acquire ArborGen ANZ for NZ$22.25 million, which is within Grant Samuel’s
assessed value range for ArborGen ANZ, and at the upper end of the range as depicted below:
COMPARISON OF THE PROPOSED TRANSACTION PRICE WITH GRANT SAMUEL’S VALUATION RANGE
The Proposed Transaction implies multiples of 7.6 times historical adjusted EBITDA and 8.9 times ArborGen
ANZ’s revised EBITDA budget for FY22. Grant Samuel’s analysis suggests the historical EBITDA multiple
implied by the Proposed Transaction is within the range of multiples paid for controlling shareholdings in
comparable companies. The EBITDA multiples implied by the Proposed Transaction are within the range of
EBITDA multiples for mature listed Australasian Agri/Aqua companies set out in section 5.5.3.
Accordingly, in Grant Samuel’s opinion the Consideration offered for ArborGen ANZ is fair.
20.7
22.25
23.0
0.0
5.0
10.0
15.0
20.0
25.0
Grant Samuel - Low Val uatio nCo nsortium OfferGrant Samuel - High Valu at ion
NZ$ million
40
6.2 Evaluation of the Impact on ArborGen’s Earnings and Financial Position
Financial analysis comparing the status quo (i.e. the Proposed Transaction does not proceed) with the pro
forma financials if the Proposed Transaction proceeds is outlined below. The financial information used is
the FY21 financial performance and position:
EVALUATION OF THE FINANCIAL IMPACT OF THE PROPOSED TRANSACTION (US$ MILLIONS)
STATUS QUO
IF THE PROPOSED
TRANSACTION
PROCEEDS
Financial performance for 12 months to 31 March 2021
Revenue 52.7 42.8
Gross profit 18.2 15.7
EBITDA (before one-off items) 12.8 10.9
EBIT (before one-off items) 2.6 1.1
Financial position as at 31 March 2021
Net operating assets 175.6 160.6
Net debt (excluding proeprty leases) (27.4) (12.4)
Net assets 148.2 148.3
Financial leverage ratios
Gearing ratio (net debt / net operating assets) 15.6% 7.7%
Leverage ratio (net debt / EBITDA) 2.1 1.1
The following points should be taken into consideration when reviewing the table above:
§
If the Proposed Transaction proceeds the net bank debt decreases from US$27.4 million to US$12.4
million. Gearing reduces from 15.6% to 7.7% and the leverage ratio reduces from 2.1 to 1.1 times. The
cash realised from the Proposed Transaction could be utilised for growth opportunities in the USA or
Brazil.
§
The Proposed Transaction results in FY21 EBITDA reducing by US$1.9 million and EBIT reducing by
US$1.5 million.
6.3 Future Opportunities
The Proposed Transaction will likely assist ArborGen in pursuing future opportunities that are available to it.
These opportunities include one or several of the following:
§
a potential sale of ArborGen;
§
a potential US listing of ArborGen;
§
freeing up capital for debt reduction and/or increased capital expenditure;
§
expanding the operations in the US and Brazil.
One of these opportunities is a potential future sale of ArborGen. By selling ArborGen ANZ first this simplifies
the ArborGen business. ArborGen will then be focussed on two countries, the US and Brazil. The Proposed
Transaction would also likely reduce regulatory approvals required for a potential future transaction. In
particular, by selling ArborGen ANZ first this may remove the requirement to obtain OIO approval in New
Zealand if a sale of the remaining businesses were to occur.
The US and Brazil businesses are very different to ArborGen ANZ’s business. ArborGen ANZ is an
operationally separate, mature and smaller Australasian business when compared with the US and Brazil
businesses. The Australasian markets have long had exposure to MCP seedlings and ArborGen’s offerings in
41
Australasia are well established, while Brazil and the US has significant upside growth potential from
advanced genetics adoption/conversion from lower end genetics. This means there are relatively fewer
growth opportunities for ArborGen ANZ when compared with the Brazil and US businesses. In other words,
the Australasian business and US/Brazil businesses are very different propositions and therefore appeal to
different acquirers. The Consortium wishes to acquire New Zealand businesses that can generate a
consistent return and has indicated that it plans to hold businesses for the long term. While potential buyers
of the US and Brazil businesses likely desire the business for potential expansion of ArborGen’s offerings in
those markets. For these reasons if the Proposed Transaction proceeds ArborGen is potentially a more
attractive proposition than it is currently for large overseas buyers (particularly without the OIO approval
hurdles).
6.4 Board and Management Focus
The Proposed Transaction will result in ArborGen and ArborGen ANZ having separate management teams
and boards focussed on their own businesses. This will allow each business to have a regional focus, have
their own strategic objectives and priorities and make decisions that are suitable for each business’
risk/return profile as well as address specific regulatory and operational issues.
While the management teams of ArborGen and ArborGen ANZ are largely separate, ArborGen’s CEO and
other ArborGen Holdings head office staff have oversight responsibilities with respect to the Australia and
New Zealand businesses. The Proposed Transaction will enable ArborGen to pursue growth and strategic
opportunities that are focussed on its largest market, the United States.
6.5 Regional Impacts
The Proposed Transaction will result in ArborGen only having orchard and nursery exposure to the US and
Brazil. This will result in exposure to fewer geographic areas and will allow ArborGen to concentrate on its
core growth markets. ArborGen ANZ will also be able to focus on Australasia. As outlined at 6.3 above the
businesses are operationally separate. The New Zealand business has the additional difference that only
trees grown in New Zealand can be planted in New Zealand for biosecurity reasons.
In recent history ArborGen has been exploring expansion in the US and Brazil. The potential sale of ArborGen
ANZ will allow ANZ to become a regionally focussed business, pursuing Australasian opportunities. It will be
strongly positioned to take advantage of potential replanting demand. Other opportunities exist in terms of
adding nurseries and orchards as ArborGen ANZ’s facilities are currently operating at full capacity. By having
a New Zealand domiciled owner there is likely to be more focus on the Australasian market and there may
be more desire to explore local expansion options.
If the Proposed Transaction proceeds this will also mean both ArborGen businesses will be smaller and less
regionally diversified than they are currently. ArborGen may be less able to readily absorb the financial and
business consequences of significant adverse events as these will have a greater relative impact. Such
adverse events include extreme weather and climate change related events and the resulting destruction of
ArborGen ANZ’s facilities and the impact on seedlings. Events such as hurricanes in the US have impacted
the operations and profitability of ArborGen in the past.
6.6 Dividends
ArborGen listed (as Rubicon) in March 2001 and has never paid a dividend. The Proposed Transaction will
allow for the reduction of debt with the potential result being the ability to pay dividends over the longer
term. Management has indicated its desire to reduce debt and pursue growth opportunities in the US and
Brazil as priorities if the Proposed Transaction were to proceed.
42
6.7 Market Value and Liquidity Considerations
The Proposed Transaction will not impact ArborGen’s listing on the NZX and will not prevent any potential
future sale of the rest of the business or another aspect of the business. There may be changes to ArborGen’s
liquidity and market price following the Proposed Transaction. For example, ArborGen may be seen as more
of a target for a takeover (without the added uncertainty of OIO approval requirement for a potential buyer)
and this could boost the share price and liquidity. However, such consequences cannot be known with
certainty.
Following the Proposed Transaction ArborGen has several options available, including a United States listing
which may be more appropriate as over 70% of the business (by revenue) is generated from the United States
operations. While this is a consideration:
§
there are existing companies listed on the NZX that have the bulk of their operations conducted offshore;
§
ArborGen’s share register consists predominantly of New Zealand investors and it would take time to
develop a meaningful investor base on another exchange; and
§
ArborGen can decide to redomicile to another stock exchange in due course and if it makes commercial
sense to do so.
6.8 Transition
The sale of part of a business can be a complicated exercise and entails risks at an operational level. There
are potential risks relating to the Proposed Transaction, including:
§
disruption to management resulting from the sale process and transfer of ownership;
§
delays and increased cost in achieving a sale of ArborGen ANZ; and
§
retaining key management personnel.
Grant Samuel does not consider these risks outside the norm of any transaction. In any event:
§
ArborGen ANZ is operationally distinct from the US and Brazil operations and has always had its own
General Manager, sales and finance function. In terms of a separation of ArborGen ANZ this would have
no operational impact on ArborGen.
§
Since beginning ArborGen ANZ has been a stand-alone commercial entity, while the other businesses
were historically research based businesses in development. There is also very limited overlap between
ArborGen ANZ’s customers and those served by the US and Brazil operations. ArborGen ANZ has
separate internal processes and has developed its own intellectual property/trade secrets independent
of the US and Brazil operations. In some circumstances the businesses have the same or very similar
trade practices and processes but these have been developed independently. Grant Samuel
understands that the Proposed Transaction is not expected to result in any intellectual property or trade
practices being lost or forfeited for either ArborGen or ArborGen ANZ.
§
Limited consents need to be obtained from lessors and key suppliers to allow the Proposed Transaction
to occur.
6.9 The Likelihood of an Alternative Offer
The Sub-Committee of Independent Directors of ArborGen ran a third party sales process in relation to its
interest in ArborGen ANZ as part of its strategic review. The Proposed Transaction represents the outcome
of a sales process run by PWC on behalf of the Sub-Committee of Independent Directors. Interest in
ArborGen ANZ was solicited from a wide range of domestic and international industry and financial market
participants. There has been an active expression of interest and bidding process. The non-binding offer
43
received from the Consortium is the highest price and most reasonable terms received from interested
parties.
ArborGen has not entered into an exclusivity agreement with the Consortium. It has entered into an
agreement to reimburse the costs of the Consortium (to a set limit) in a number of circumstances including
if ArborGen decides not to sell ArborGen ANZ to the Consortium. In Grant Samuel’s view the prospects of an
alternative offer are low when taking into account the parties approached as part of the strategic review, the
costs ArborGen would be required to incur if it chose to engage with another party and the time that has
elapsed since the start of the strategic review.
6.10 Alternatives to the Proposed Transaction
The primary alternatives to selling ArborGen ANZ to the Consortium are to either:
§
retain ArborGen ANZ and continue to operate it as part of the wider group; or
§
seek a purchaser for the wider ArborGen group.
As explained in section 6.3 ArborGen ANZ is a very different business to its Brazil and US counterparts. There
is a risk that any offer to acquire ArborGen as a whole will result in an insufficient multiple being paid for the
ANZ business (if a capitalisation of earnings approach is applied). In terms of the two bullet points above,
parties interested in ArborGen’s higher growth US and Brazil operations are less likely to be interested in the
operationally separate, mature and smaller Australasian business. If a potential sale of ArborGen US and
Brazil were to occur at a future date this will be the sale of a more regionally focussed, growth orientated
business.
6.11 Rationale, timing and circumstances surrounding the Offer
The Proposed Transaction has been considered by the board of ArborGen following the strategic review that
has taken place over the past three months. As part of this a number of options were considered by the
ArborGen’s Board and included (but were not limited to) a potential sale of all the shares in, or all or some
of the assets of the Company or a US listing. The objective of the strategic review was to determine what
the best outcome would be for shareholders and the future of ArborGen. Following the announcement of
the strategic review ArborGen share price has increased significantly from (NZ$0.22 on Tuesday 29 June prior
to the announcement to NZ$0.29 on 29 October).
6.12 Conclusion
Grant Samuel has been requested to provide an opinion on the merits of the Proposed Transaction. In Grant
Samuel’s opinion, based on the analysis of the merits outlined above, the Proposed Transaction is in the best
interests of ArborGen Holdings and its shareholders. The consideration offered by the Consortium is within
Grant Samuel’s valuation range. The Proposed Transaction will allow ArborGen to reduce debt. It will also
allow ArborGen to become more focussed on its primary markets of US and Brazil. If ArborGen ANZ is sold
then ArborGen will be better placed for a future US listing or a potential sale of the remaining business should
ArborGen’s shareholders decide to do so.
GRANT SAMUEL & ASSOCIATES LIMITED
November 2021
44
APPENDIX A – RECENT TRANSACTION EVIDENCE
A brief description of each of the transactions listed in Section 5.5.2 is outlined below:
2PH Farms Pty Ltd / Costa Group Holdings Limited
On 23 June 2021 Costa Group Holdings Limited (Costa) announced that it had agreed to acquire the business and
assets of 2PH Farms Pty Ltd (2PH), a Central Queensland based citrus grower for upfront consideration of
approximately A$200m in cash. Costa will also pay A$31m for an additional property where a new citrus crop is
currently being planted. 2PH is expected to generate ~A$29m of EBITDA and ~A21.5m of EBIT for Costa. The
relatively young citrus orchards are still in growth phase with yield forecast to more than double as the orchards
mature. The purchase price implies multiples of 6.9 times EBITDA and 9.3 times EBIT. Costa is Australia’s leading
grower, packer and marketer of fresh fruits and vegetables.
Aongatete Coolstores Limited / Seeka Limited
On 13 March 2019 Seeka Limited (Seeka) announced that it had agreed to purchase 100% of Aongatete Coolstores
Limited for NZ$25m. The business is expected to an estimated 4 million to 4.5 million trays to Seeka’s catchment
and to deliver sustainable EBITDA of NZ$3.5m and NZ$4.5m. Aongatete is an integrated kiwifruit orcharding and
post-harvest company operating across the Bay of Plenty. The assets acquired are of excellent quality. The
purchase price implies an EBITDA multiple range of 5.6 to 7.1 times (with a midpoint of 6.3 times). Seeka is New
Zealand’s largest fully integrated kiwifruit business.
PGG Wrightson Seeds / DLF Seeds
On 5 August 2018 PGG Wrightson Limited (PGW) entered into an agreement to sell its seed business for NZ$421
million to DLF Seeds A/S, a leading global seeds group. In addition, DLF assumed debt of NZ$18 million. PGW
Seeds is a leading provider of seeds in Australasia with revenues of approximately NZ$450 million, EBITDA of
NZ$35.6 million and EBIT of NZ$29.6 million in the year prior to the transaction. DLF is a Danish based cooperative
and is active in more than 80 countries. It has 1,200 employees and revenues of approximately NZ$810 million
p.a. The transaction implied multiples of 12.5 times historical EBITDA, 12.3 forecast EBITDA, 15.0 times historical
EBIT and 15.7 times forecast EBIT. The multiples paid reflect PGW Seeds’ leading market position, size and
attractiveness to global seed companies.
Allied Pinnacle / Pacific Equity Partners
On 31 January 2017 GrainCorp Limited (GrainCorp) announced the sale of its 60% investment in Allied Mills
Australia Pty Ltd to Pacific Equity Partners for A$190 million. Venture partner Cargill also sold its 40% interest. The
sale price equated to an enterprise value of A$455 million. The purchase price implied multiples of 10 times
historical EBITDA and 16.6 times historical EBIT. Allied Mills is Australia’s largest supplier of flour and bakery pre-
mixes to bread stores, in-store supermarket bakeries and the industrial food service sector.
BFP / SEEKA
On 5 August 2015 Seeka announced that it has agreed to acquire the kiwifruit and orcharding business and assets
of Australian company Bunbartha Fruit Packers Pty Ltd (BFP) for A$22 million. The acquisition made Seeka the
largest kiwifruit grower in Australia, building on its position in New Zealand. The purchase included 505 hectares
of land. BFP has revenues of approximately NZ$17m and is expected to increase Seeka’s EBITDA by between
NZ$3.2m to NZ$4.0m. The purchase price implies an EBITDA multiple range of 5.5 to 6.9 times (with a midpoint
of 6.1 times).
45
Apollo Apples / Turners & Growers
On 16 April 2014 Turners & Growers Limited (T&G) announced that it had agreed to acquire the business and
assets of Apollo Apples Limited. Apollo is a vertically integrated apple operator growing, packing and exporting
approximately 1.4 million cartons of apples in 2013. Apollo owns and leases over 500 hectares of apple orchards
in the Hawke’s Bay. It also owns and operates a large packhouse and coolstore in Whakatu. In the year ended 31
December 2013 Apollo’s sales were NZ$50 million and EBIT was NZ$6.3 million. The purchase price comprised an
initial payment of NZ$36.05 million, an additional payment of NZ$7.1 million for working capital, plus a further
NZ$8 million to be paid over the four years following completion in the event that certain performance benchmarks
(e.g. growth in apple volume) are met or exceeded by the business. The purchase price implies a multiple of 8.1
times EBIT (including the earn out payments).
Turners & Growers / BayWa
On 10 November 2011 Guinness Peat Group plc (GPG) confirmed that it had entered into a lock up agreement with
German company BayWa Aktiengesellschaft (BayWa) for GPG’s 63.46% shareholding in T&G. BayWa is an
international trading and services company with annual EBIT of ~EUR 130 million on revenues of EUR 8 billion and
has a workforce of 16,000 employees. The enterprise value implied multiples of 7.0 times historical EBITDA and
12.1 times historical EBIT. T&G grows, markets and distributes fresh produce in New Zealand.
Scales / Direct Capital
On 3 May 2011 Direct Capital agreed to buy South Canterbury Finance’s 79.7% shareholding in Scales Corp from
the receivers for NZ$44 million. Co-investors included the NZ Superannuation Fund and Accident Compensation
Corporation. Scales is a horticultural and primary sector processing company with interests in logistics and exports.
The purchase implied an enterprise value of NZ$174 million and multiples of 6.0 times historical EBITDA and 8.6
times historical EBIT.
46
APPENDIX B – COMPARABLE LISTED COMPANIES
A brief description of each of the companies listed in Section 5.5.3 is outlined below:
ArborGen Holdings Limited (NZSE: ARB)
See description in section 3.
Foley Wines Limited (NZSE: FWL)
Foley Wines Limited (Foley), an integrated wine company, produces, markets, and sells wines in New Zealand. It
offers wines under the Martinborough Vineyard, Te Kairanga, Lighthouse Gin, Grove Mill, Vavasour, and Mt
Difficulty brands. It also exports its products. Approximately 46% of revenue is generated from New Zealand sales,
with the remaining 54% being from overseas sales. Foley was incorporated in 1986 and is headquartered in
Blenheim, New Zealand.
Seeka Limited (NZSE: SEK)
Seeka Limited (Seeka), together with its subsidiaries, provides orchard lease and management, and post harvest
services to the horticulture industry primarily in New Zealand. It operates through Orchard Operations, Post
Harvest Operations, Retail Service Operations and has an Australian segment. The Orchard Operations segment
offers on-orchard management services to orchard owners who produce kiwifruit, avocado, and kiwiberry crops.
The Post Harvest Operations segment provides post-harvest services to the kiwifruit, avocado, and kiwiberry
industries. The Retail Service Operations segment offers fruit marketing services, retail and ripening services for
imported fruit produce, and operates a wholesale market. Approximately 56% of Seeka’s revenue is generated
from post harvest operations, with another 30% generated from the Orchard Operations segment. Seeka was
founded in 1987 and is headquartered in Te Puke, New Zealand.
Delegat Group Limited (NZSE:DGL)
Delegat Group Limited (Delegat) engages in the production, marketing, distribution, and sale of wine. The
company markets and sells its products primarily under the Oyster Bay, Barossa Valley Estate, and Delegat brands
to retailers and distributors in the United Kingdom, Ireland, and rest of Europe, the United States, Canada, Australia,
New Zealand, and the Asia Pacific. Delegat was founded in 1947 and is based in Auckland, New Zealand.
Sanford Limited (NZSE: SAN)
Sanford Limited (Sanford) engages in farming, harvesting, processing, storing, and marketing of seafood products.
It operates through Wildcatch and Aquaculture segments. The company catches and processes inshore and
deepwater fish species, as well as farms, harvests, and processes mussels and salmon. Sanford also provides
auction, wharf, and research services and retails and wholesales seafood. The business primarily operates in New
Zealand with approximately 94% of revenue generated from the New Zealand segment and approximately 6% from
its Australian segment. Sanford was founded in 1881 and is headquartered in Auckland, New Zealand.
Scales Corporation (NZSE: SCL)
Scales Corporation Limited (Scales) engages in agribusiness activities in New Zealand. The company operates
through Food Ingredients, Horticulture, and Logistics segments. The Food Ingredients segment processes and
markets food ingredients, such as pet food ingredients and juice concentrates. This segment also manufactures
47
and sells apple, kiwifruit, and pear juice concentrates. The Horticulture segment is involved in growing, packaging,
marketing, and exporting apples under the Mr Apple, Fern Ridge Fresh, Dazzle, and Posy brands. The Logistics
segment provides supply chain services for exporters, importers, and FMCG businesses. This segment also engages
in the sea and air freight of produce. Approximately 52% of revenue is generated from the Horticulture segment
and 37% from the Food Ingredients segment. The company was founded in 1897 and is headquartered in
Christchurch, New Zealand.
PGG Wrightson (NZSE: PGW)
PGG Wrightson Limited (PGG Wrightson) provides goods and services for agricultural and horticultural sectors in
New Zealand. The company operates in two segments, Agency, and Retail & Water. It operates rural supplies
stores that offer a range of products in various categories, such as fencing, agricultural chemicals, animal health,
animal equipment and handling and irrigation supplies. The company also provides agency services for the sale
and purchase of livestock through auction, private and on-farm sales, and specialist stud stock sales, irrigation and
water services to farmers and horticulturists and markets and exports wool products. In addition, it offers
insurance products as well as farm machinery and equipment and real estate services. The Retail & Water segment
comprises approximately 78% of revenues while the Agency segment accounts for the other 22%. PGG Wrightson
was founded in 1841 and is headquartered in Christchurch, New Zealand.
Tassal Group Limited (ASC: TGR)
Tassal Group Limited (Tassal), together with its subsidiaries, engages in the hatching, farming, processing,
marketing, and sale of Atlantic salmon and tiger prawns in Australia. It offers fresh, smoked, canned, and frozen
salmon and Australian black tiger prawns. The company also procures, processes, markets, and sells salmon,
prawns, and other seafood species. It provides its products under the Tassal, Tropic Co, Superior Gold, Tasmanian
Smokehouse, and De Costi Seafoods brands through retail and wholesale channels. Domestic segment sales
comprised approximately 84% of revenue, with international sales making up the remaining 16%. Tassal was
founded in 1986 and is headquartered in Hobart, Australia.
Ridley Corporation Limited (ASX: RIC)
Ridley Corporation Limited (Ridley), together with its subsidiaries, provides animal nutrition solutions in Australia.
It operates in two segments, Packaged Feeds and Ingredients, and Bulk Stockfeeds. The company offers its
products primarily under the Ridley, Barastoc, Rumevite, Cobber, Primo, and Food for Dogs brands. It provides
nutrition solutions to various food producers in the dairy, poultry, pig, aquaculture, sheep, and beef industries.
Approximately 66% of revenues are generated from the Bulk Stockfeeds segment, with the remaining 34% from
the Packaged Feeds and Ingredients segment. Ridley was incorporated in 1987 and is headquartered in Melbourne,
Australia.
GrainCorp Limited (ASX: GNC)
GrainCorp Limited (GrainCorp) operates as a food ingredients and agribusiness company in Australasia and
internationally. It operates through two segments Agribusiness and Processing. Key activities include receiving,
transports, tests, stores, and imports grains comprising wheat, barley, canola, and sorghum, as well as other bulk
commodities. It also markets grain and agricultural products and operates grain pools. GrainCorp is also involved
in processing and crushing oilseeds, supplying edible oils and feeds, operating bulk liquid port terminals and the
provision of storage, packaging, transportation, and logistics services. GrainCorp’s Agribusiness division accounts
for approximately 83% of revenue. GrainCorp was founded in 1916 and is headquartered in Sydney, Australia.
48
Ricegrowers Limited (ASX: SGLLV)
Ricegrowers Limited (Sunrice), operates as a rice food company in Australia and internationally. The company
operates through Rice Pool, International Rice, Rice Food, Riviana Foods, and CopRice segments. It engages in the
receipt and storage of paddy rice, milling, manufacturing, procurement, distribution, and marketing of rice and
related products, as well as other grocery products. The company offers its products under the Sunwhite, Solrice,
Trukai, CopRice, Hinode, Always Fresh, Admiral, Captain, Riviana, Mahatma, Menu Master, Garden Supreme, and
Ocean Supreme brands. Sunrice’s international rice segment is its largest accounting for approximately 53% of
revenue. Sunrice was founded in 1950 and is based in Sydney, Australia.
Costa Group Holdings Limited (ASX: CGC)
Costa Group Holdings Limited (Costa) produces, packs, and markets fruits and vegetables to food retailers. It
operates through three segments: Produce, Costa Farms & Logistics, and International. The company offers
mushrooms, raspberries, strawberries, blackberries, tomatoes, citrus, avocados, bananas, grapes, and other fruits.
It also provides chilled logistics warehousing and services, as well as wholesale and marketing services. As of June
23, 2021, it had approximately 5,000 planted hectares of farmland, 30 hectares of glasshouse facilities, and 3
mushroom growing facilities in Australia. Approximately 76% of revenue is generated from the Produce segment,
12% from Costa Farms & Logistics and 12% from the International Segment. Costa was founded in 1888 and is
based in Ravenhall, Australia.
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APPENDIX C – VALUATION METHODOLOGY DESCRIPTIONS
Capitalisation of Earnings
Capitalisation of earnings or cash flows is most appropriate for businesses with a substantial operating history and
a consistent earnings trend that is sufficiently stable to be indicative of ongoing earnings potential. This
methodology is not particularly suitable for start-up businesses, businesses with an erratic earnings pattern or
businesses that have unusual expenditure requirements. This methodology involves capitalising the earnings or
cash flows of a business at a multiple that reflects the risks of the business and the stream of income that it
generates. These multiples can be applied to a number of different earnings or cash flow measures including
EBITDA, EBITA, EBIT or net profit after tax. These are referred to respectively as EBITDA multiples, EBITA multiples,
EBIT multiples and price earnings multiples. Price earnings multiples are commonly used in the context of the
share market. EBITDA, EBITA and EBIT multiples are more commonly used in valuing whole businesses for
acquisition purposes where gearing is in the control of the acquirer.
Where an ongoing business with relatively stable and predictable earnings is being valued Grant Samuel uses
capitalised earnings or operating cash flows as a primary reference point. Application of this valuation
methodology involves:
§
estimation of earnings or cash flow levels that a purchaser would utilise for valuation purposes having regard
to historical and forecast operating results, non-recurring items of income and expenditure and known
factors likely to impact on operating performance; and
§
consideration of an appropriate capitalisation multiple having regard to the market rating of comparable
businesses, the extent and nature of competition, the time period of earnings used, the quality of earnings,
growth prospects and relative business risk.
The choice between the parameters is usually not critical and should give a similar result. All are commonly used
in the valuation of industrial businesses. EBITDA can be preferable if depreciation or non-cash charges distort
earnings or make comparisons between companies difficult but care needs to be exercised to ensure that proper
account is taken of factors such as the level of capital expenditure needed for the business and whether or not any
amortisation costs also relate to ongoing cash costs. EBITA avoids the distortions of goodwill amortisation. EBIT
can better adjust for differences in relative capital intensity.
Determination of the appropriate earnings multiple is usually the most judgemental element of a valuation.
Definitive or even indicative offers for a particular asset or business can provide the most reliable support for
selection of an appropriate earnings multiple. In the absence of meaningful offers, it is necessary to infer the
appropriate multiple from other evidence.
The primary approach used by valuers is to determine the multiple that other buyers have been prepared to pay
for similar businesses in the recent past. However, each transaction will be the product of a unique combination
of factors, including:
§
economic factors (e.g. economic growth, inflation, interest rates) affecting the markets in which the
company operates;
§
strategic attractions of the business - its particular strengths and weaknesses, market position of the business,
strength of competition and barriers to entry;
§
rationalisation or synergy benefits available to the acquirer;
§
the structural and regulatory framework;
§
investment and sharemarket conditions at the time; and
§
the number of competing buyers for a business.
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A pattern may emerge from transactions involving similar businesses with sales typically taking place at prices
corresponding to earnings multiples within a particular range. While averages or medians can be determined it is
not appropriate to simply apply such measures to the business being valued. The range will generally reflect the
growth prospects and risks of those businesses. Mature, low growth businesses will, in the absence of other factors,
attract lower multiples than those businesses with potential for significant growth in earnings. The most important
part of valuation is to evaluate the attributes of the specific business being valued and to distinguish it from its
peers so as to form a judgement as to where on the spectrum it appropriately belongs.
An alternative approach in valuing businesses is to review the multiples at which shares in listed companies in the
same industry sector trade on the sharemarket. This gives an indication of the price levels at which portfolio
investors are prepared to invest in these businesses. Share prices reflect trades in small parcels of shares (portfolio
interests) rather than whole companies and it is necessary to adjust for this factor. To convert sharemarket data
to meaningful information on the valuation of companies as a whole, it is market practice to add a “premium for
control” to allow for the premium which is normally paid to obtain control through a takeover offer. This premium
is typically in the range 20-35%.
The premium for control paid in takeovers is observable but caution must be exercised in assessing the value of a
company or business based on the market rating of comparable companies or businesses. The premium for control
is an outcome of the valuation process, not a determinant of value. Premiums are paid for reasons that vary from
case to case and may be substantial due to synergy or other benefits available to the acquirer. In other situations
premiums may be minimal or even zero. It is inappropriate to apply an average premium of 20-35% without having
regard to the circumstances of each case. In some situations there is no premium. There are transactions where
no corporate buyer is prepared to pay a price in excess of the prices paid by institutional investors through an initial
public offering.
Acquisitions of listed companies in different countries can be analysed for comparative purposes, but it is necessary
to give consideration to differences in overall sharemarket levels and ratings between countries, economic factors
(economic growth, inflation, interest rates) and market structures (competition etc.) and the regulatory framework.
It is not appropriate to adjust multiples in a mechanistic way for differences in interest rates or sharemarket levels.
The analysis of comparable transactions and sharemarket prices for comparable companies will not always lead to
an obvious conclusion as to which multiple or range of multiples will apply. There will often be a wide spread of
multiples and the application of judgement becomes critical. Moreover, it is necessary to consider the particular
attributes of the business being valued and decide whether it warrants a higher or lower multiple than the
comparable companies. This assessment is essentially a judgement.
Discounted Cash Flow
Discounting of projected cash flows has a strong theoretical basis. It is the most commonly used method for
valuation in a number of industries, and for the valuation of start-up projects where earnings during the first few
years can be negative. DCF valuations involve calculating the net present value of projected cash flows. This
methodology is able to explicitly capture the effect of a turnaround in the business, the ramp up to maturity or
significant changes expected in capital expenditure patterns. The cash flows are discounted using a discount rate,
which reflects the risk associated with the cash flow stream. Considerable judgement is required in estimating
future cash flows and it is generally necessary to place great reliance on medium to long-term projections prepared
by management. The discount rate is also not an observable number and must be inferred from other data (usually
only historical). None of this data is particularly reliable so estimates of the discount rate necessity involve a
substantial element of judgment. In addition, even where cash flow forecasts are available the terminal or
continuing value is usually a high proportion of value. Accordingly, the multiple used in assessing this terminal
value becomes the critical determinant in the valuation (i.e. it is a “de facto” cash flow capitalisation valuation).
The net present value is typically extremely sensitive to relatively small changes in underlying assumptions, few of
which are capable of being predicted with accuracy, particularly beyond the first two or three years. The arbitrary
assumptions that need to be made and the width of any value range mean the results are often not meaningful or
51
reliable. Notwithstanding these limitations, DCF valuations are commonly used and can at least play a role in
providing a check on alternative methodologies, not least because explicit and relatively detailed assumptions
need to be made as to the expected future performance of the business operations.
Industry Rules of Thumb
Industry rules of thumb are commonly used in some industries. These are generally used by a valuer as a “cross
check” of the result determined by a capitalised earnings valuation or by discounting cash flows, but in some
industries rules of thumb can be the primary basis on which buyers determine prices. Grant Samuel is not aware
of any commonly used rules of thumb that would be appropriate to value ArborGen ANZ. In any event, it should
be recognised that rules of thumb are usually relatively crude and prone to misinterpretation.
Realisation of Assets
Valuations based on an estimate of the aggregate proceeds from an orderly realisation of assets are commonly
applied to businesses that are not going concerns. They effectively reflect liquidation values and typically attribute
no value to any goodwill associated with ongoing trading. Such an approach is not appropriate in ArborGen ANZ’s
case.
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APPENDIX D – INTERPRETATION OF MULTIPLES
Earnings multiples are normally benchmarked against two primary sets of reference points:
§
the multiples implied by the share prices of listed peer group companies; and
§
the multiples implied by the prices paid in acquisitions of other companies in the same industry.
In interpreting and evaluating such data it is necessary to recognise that:
§
multiples based on listed company share prices do not include a premium for control and are therefore often
(but not always) less than multiples that would apply to acquisitions of controlling interests in similar
companies. However, while the premium paid to obtain control in takeovers is observable (typically in the
range 20-35%) it is inappropriate to simply add a premium to listed multiples. The premium for control is an
outcome of the valuation process, not a determinant of value. Premiums are paid for reasons that vary from
case to case and may be substantial due to synergy or other benefits available to the acquirer. In other
situations premiums may be minimal or even zero. There are transactions where no corporate buyer is
prepared to pay a price in excess of the prices paid by share market investors;
§
acquisition multiples from comparable transactions are therefore usually seen as a better guide when valuing
100% of a business but the data tends to be less transparent and information on forecast earnings is often
unavailable;
§
the analysis will give a range of outcomes from which averages or medians can be determined but it is not
appropriate to simply apply such measures to the company being valued. The most important part of
valuation is to evaluate the attributes of the specific company being valued and to distinguish it from its
peers so as to form a judgement as to where on the spectrum it belongs;
§
acquisition multiples are a product of the economic and other circumstances at the time of the transaction.
However, each transaction will be the product of a unique combination of factors, including:
• economic factors (e.g. economic growth, inflation, interest rates) affecting the markets in which the
company operates;
• strategic attractions of the business – its particular strengths and weaknesses, market position of the
business, strength of competition and barriers to entry;
• the company’s own performance and growth trajectory;
• rationalisation or synergy benefits available to the acquirer;
• the structural and regulatory framework;
• investment and share market conditions at the time, and
• the number of competing buyers for a business;
§
acquisitions and listed companies in different countries can be analysed for comparative purposes, but it is
necessary to give consideration to differences in overall share market levels and rating between countries,
economic factors (economic growth, inflation, interest rates), market structure (competition etc) and the
regulatory framework. It is not appropriate to adjust multiples in a mechanistic way for differences in
interest rates or share market levels;
§
acquisition multiples are based on the target’s earnings but the price paid normally reflects the fact that
there were cost reduction opportunities or synergies available to the acquirer (at least if the acquirer is a
“trade buyer” with existing businesses in the same or a related industry). If the target’s earnings were
adjusted for these cost reductions and/or synergies the effective multiple paid by the acquirer would be
lower than that calculated on the target’s earnings;
53
§
while EBITDA multiples are commonly used benchmarks they are an incomplete measure of cash flow. The
appropriate multiple is affected by, among other things, the level of capital expenditure (and working capital
investment) relative to EBITDA. In this respect:
• EBIT multiples can in some circumstances be a better guide because (assuming depreciation is a
reasonable proxy for capital expenditure) they effectively adjust for relative capital intensity and present
a better approximation of free cash flow. However, capital expenditure is lumpy and depreciation
expense may not be a reliable guide. In addition, there can be differences between companies in the
basis of calculation of depreciation; and
• businesses that generate higher EBITDA margins than their peer group companies will, all other things
being equal, warrant higher EBITDA multiples because free cash flow will, in relative terms, be higher
(as capital expenditure is a smaller proportion of earnings).
54
APPENDIX E – QUALIFICATIONS, DECLARATIONS AND CONSENTS
1. Qualifications
The Grant Samuel group of companies provides corporate advisory services in relation to mergers and acquisitions,
capital raisings, corporate restructuring and financial matters generally. One of the primary activities of Grant
Samuel is the preparation of corporate and business valuations and the provision of independent advice and
expert’s reports in connection with mergers and acquisitions, takeovers and capital reconstructions. Since
inception in 1988, Grant Samuel and its related companies have prepared more than 400 public expert and
appraisal reports.
The persons responsible for preparing this report on behalf of Grant Samuel are Michael Lorimer, BCA, Christopher
Smith, BCom, PGDipFin, MAppFin, Jake Sheehan, BCom (Hons) and Myles Snaddon, LLB, BCom, CFA. Each has a
significant number of years of experience in relevant corporate advisory matters.
2. Limitations and Reliance on Information
Grant Samuel believes that is opinions must be considered in their entirety and that selecting portions of the
analysis or factors considered by it, without considering all factors and analyses together, could create a misleading
view of the process employed and the conclusions reached. Any attempt to do so could lead to undue emphasis
on a particular factor or analysis. The preparation of opinions such as those set out in this report is a complex
process and is not necessarily susceptible to partial analysis or summary.
Grant Samuel’s opinion is based on economic, market and other conditions prevailing at the date of this report.
Such conditions can change significantly over relatively short periods of time. If they did change materially,
subsequent to the date of this report, the opinion could be different in these changed circumstances.
This report is also based upon financial and other information provided by ArborGen and their respective advisers.
Grant Samuel has considered and relied upon this information. Grant Samuel believes that the information
provided was reliable, complete and not misleading and has no reason to believe that any material facts have been
withheld.
The information provided to Grant Samuel has been evaluated through analysis, enquiry, and review for the
purposes of assessing the Proposed Transaction. However in such assignments time is limited and Grant Samuel
does not warrant that these enquiries have identified or verified all of the matters which an audit, extensive
examination or “due diligence” investigation might disclose. While Grant Samuel has made what it considers to
be appropriate enquiries for the purposes of forming its opinions, “due diligence” of the type undertaken by
companies and their advisers in relation to, for example, product disclosure statements or profit forecasts is
beyond the scope of an independent expert.
The limited timeframe restricts the ability to undertake a detailed investigation of ArborGen and ArborGen ANZ.
Grant Samuel has not undertaken a due diligence investigation of ArborGen or ArborGen ANZ. In addition,
preparation of this report does not imply that Grant Samuel has audited in any way the management accounts or
other records of ArborGen or ArborGen ANZ. It is understood that, where appropriate, the accounting information
provided to Grant Samuel was prepared in accordance with generally accepted accounting practice and in a
manner consistent with methods of accounting used in previous years.
An important part of the information base used in forming an opinion of the kind expressed in this report is the
opinions and judgement of the management of the relevant enterprise. That information was also evaluated
through analysis, enquiry and review to the extent practicable. However, it must be recognised that such
information is not always capable of external verification or validation.
The information provided to Grant Samuel included projections of future revenues, expenditures, profits and cash
flows of ArborGen ANZ was prepared by their respective management teams and advisers. Grant Samuel has used
55
these projections for the purpose of its analysis. Grant Samuel has assumed that these projections were prepared
accurately, fairly and honestly based on information available to management at the time and within the practical
constraints and limitations of such projections. It is assumed that the projections do not reflect any material bias,
either positive or negative. Grant Samuel has no reason to believe otherwise.
However, Grant Samuel in no way guarantees or otherwise warrants the achievability of the projections of future
profits and cash flows for ArborGen ANZ. Projections are inherently uncertain. Projections are predictions of
future events that cannot be assured and are necessarily based on assumptions, many of which are beyond the
control of management. The actual future results may be significantly more or less favourable.
To the extent that there are legal issues relating to assets, properties, or business interests or issues relating to
compliance with applicable laws, regulations, and policies, Grant Samuel assumes no responsibility and offers no
legal opinion or interpretation on any issue. In forming its opinion, Grant Samuel has assumed, except as
specifically advised to it, that:
§ the title to all such assets, properties, or business interests purportedly owned by ArborGen is good
and marketable in all material respects, and there are no material adverse interests, encumbrances,
engineering, environmental, zoning, planning or related issues associated with these interests, and that
the subject assets, properties, or business interests are free and clear of any and all material liens,
encumbrances or encroachments;
§ there is compliance in all material respects with all applicable national and local regulations and laws,
as well as the policies of all applicable regulators other than as publicly disclosed, and that all required
licences, rights, consents, or legislative or administrative authorities from any government, private
entity, regulatory agency or organisation have been or can be obtained or renewed for the operation
of the business of ArborGen ANZ, other than as publicly disclosed;
§ various contracts in place and their respective contractual terms will continue and will not be materially
and adversely influenced by potential changes in control; and
§ there are no material legal proceedings regarding the business, assets or affairs of ArborGen, other
than as publicly disclosed.
3. Disclaimers
It is not intended that this report should be used or relied upon for any purpose other than as an expression of
Grant Samuel’s opinion as to the merits of the Proposed Transaction. Grant Samuel expressly disclaims any liability
to any ArborGen security holder who relies or purports to rely on the report for any other purpose and to any
other party who relies or purports to rely on the report for any purpose whatsoever.
This report has been prepared by Grant Samuel with care and diligence and the statements and opinions given by
Grant Samuel in this report are given in good faith and in the belief on reasonable grounds that such statements
and opinions are correct and not misleading. However, no responsibility is accepted by Grant Samuel or any of its
officers or employees for errors or omissions however arising in the preparation of this report, provided that this
shall not absolve Grant Samuel from liability arising from an opinion expressed recklessly or in bad faith.
4. Independence
Grant Samuel and its related entities do not have any shareholding in or other relationship or conflict of interest
with ArborGen or the Consortium that could affect its ability to provide an unbiased opinion in relation to the
Proposed Transaction. Grant Samuel had no part in the formulation of the Proposed Transaction. Its only role has
been the preparation of this report. Grant Samuel will receive a fixed fee for the preparation of this report. This
fee is not contingent on the outcome of the Proposed Transaction. Grant Samuel will receive no other benefit for
the preparation of this report.
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5. Information
The following information was used and relied upon in preparing this report:
5.1 Publicly Available Information
§
ArborGen’s 2019, 2020 and 2021 annual report;
§
ArborGen NZX announcements;
§
brokers’ reports and press articles on ArborGen;
§
industry reports such as those provided by MPI; and
§
share market data and related information on ArborGen and other businesses in the agricultural and
aquaculture industries.
5.2 Non Public Information
§
ArborGen NZ nursery and orchard capacity information;
§
ArborGen ANZ management accounts;
§
ArborGen ANZ long term forecast model;
§
transaction related presentations (including presentations from financial advisers); and
§
other information provided in the ArborGen ANZ virtual data room.
Grant Samuel has also had discussions with and obtained information from Senior Management of ArborGen.
6. Declarations
ArborGen Holdings has agreed that it will indemnify Grant Samuel and its employees and officers in respect of any
liability suffered or incurred as a result of or in connection with the preparation of the report. This indemnity will
not apply in respect of the proportion of any liability found by a Court to be primarily caused by any conduct
involving gross negligence or wilful misconduct by Grant Samuel. ArborGen Holdings has also agreed to indemnify
Grant Samuel and its employees and officers for time spent and reasonable legal costs and expenses incurred in
relation to any inquiry or proceeding initiated by any person. Where Grant Samuel or its employees and officers
are found to have been grossly negligent or engaged in wilful misconduct Grant Samuel shall bear the proportion
of such costs caused by its action. Any claims by ArborGen are limited to an amount equal to the fees paid to Grant
Samuel.
Advance drafts of this report were provided to the directors and executive management of ArborGen. Certain
changes were made to the drafting of the report as a result of the circulation of the draft report. There was no
alteration to the methodology, evaluation or conclusions as a result of issuing the drafts.
7. Consents
Grant Samuel consents to the issuing of this report in the form and context in which is to be sent to security holders
of ArborGen. Neither the whole nor any part of this report nor any reference thereto may be included in any other
document without the prior written consent of Grant Samuel as to the form and context in which it appears.
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.