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 The seeds industry is as competitive as ever. Recent
acquisitions have left strong footprints in the business and
although the absolute number of competitors has gone down,
increased market power is expected to intensify competition, in
particular at the top end. A clear demonstration of this has
been given by Syngenta, which in a short time period realised a
string of acquisitions (Golden Harvest, Advanta’s North American
business (including Garst), CHS (corn germplasm) and GA21 (a
glyphosphate tolerance trait from Bayer CropScience)).
The main result of all this is an enforced number three ranking
in seeds overall and a strongly enhanced position in the
lucrative U.S. corn seed market, more than doubling its market
share to 15%. Furthermore, Syngenta’s market share in soybean
seeds increased to 13%. In practice, this means that Pioneer and
Monsanto may finally expect a serious challenge to their
leadership in these markets. More importantly, the Top 3
companies own the main traits and competition on this is
expected to increase, also because a wider choice is getting to
the market now. This will benefit other players in the business;
in particular the top 10 companies are expected to enjoy better
licensing arrangements.
Underlying Syngenta’s acquisition trail was the need to get
higher returns on the company’s R&D in seeds, in particular on
the biotech end, as crop seeds like corn and soybean are
important vehicles to get different traits to the market. In
addition, the fact that corn is an important crop to the company
from an agchemicals point of view also played a significant
role. Interestingly, the Top 3 in seeds – Pioneer, Monsanto,
Syngenta – all combine agchemicals and seeds. By packaging
products together these companies have been quite successful at
leveraging a greater share of the seeds and agrochemicals
markets in one offering.
So far on the predator, what about the prey? It is important to
remark that the transactions have been on bits and pieces,
except Golden Harvest. This transaction in one instance solved a
conflict that was dragging on between the members of this brand.
But looking beyond that, companies of this size face a tough
battle to stay competitive. They usually rely on external
providers for the required traits, for which they pay technology
fees. While this is a strategy that many companies (even bigger
ones) follow, fee payments could become burdensome. Even though
we may witness an improved accessibility to traits due to
stronger competition in the Top 3, tech fees are serious money,
in particular for smaller companies.
An other interesting development is that venture capitalists
(VC) increasingly eye the seeds business. This is remarkable as
VCs usually work with time horizons (<5 years) that may not
always work in seeds. Recent evidence of involvement is the
Advanta transaction, in which part of the company was acquired
by Fox Paine, a VC that earlier acquired vegetable seeds company
Seminis. What does this tell us? First of all that, apparently,
seed companies are perceived as a good investment; this is good
news after a period in which they were considered ‘non-core’ and
the subject of divestiture. Secondly, that the game is not yet
over – the involvement of a VC is always temporary – and that
the business will continue to see M&A activity in the
foreseeable future. Not necessarily will this be about entire
companies, as increasingly transactions are about parts,
subsidiaries, or even breeding lines. The strategic fit is what
matters, not anymore the mere ownership of a company.
Martin van Vaals can be reached at
Martin.van.Vaals@rabobank.com |
