Consolidation in Floriculture Breeding
In the past decade, Dümmen Orange, backed by private equity firm BC Partners (and predecessor investor H2 Equity Partners), has shaken up the floriculture breeding segment with 24 acquisitions. Other private equity firms have followed suit, including Foreman Capital’s investment in Van den Bos in 2016 and Nimbus’s investment in Royal van Zanten in 2018. Whether these two acquisitions will develop into larger breeding platforms, similar to Dümmen’s, remains to be seen.
With only one acquisition in 2018 (Bloomz), Dümmen seems to be focusing more on integration of the companies than on additional acquisitions. Despite the acquisition pace of Dümmen having calmed down, considerable M&A activity amongst pure strategic investors took place in 2018. Sakata Ornamental acquired a minority stake in Van Egmond Lisianthus and Beekenkamp Plants acquired the osteospermum breeding program from Sunny Holland. Other large players in floriculture breeding – Syngenta Flowers and Ball Horticultural – have made targeted acquisitions to complement their portfolios and market presence. PanAmerican Seed (Ball) acquired the begonia breeding assets of Golden State Bulb Growers. Golden State Bulb Growers was advised by Verdant Partners. Syngenta Flowers acquired Verwer Dahlias and Floranova, while establishing partnerships with Beekenkamp Plants, Danziger and Kapiteyn.
While it is expected that consolidation in the floriculture industry will continue, we anticipate that for some time to come, independent (family-owned) businesses focusing on one or a limited number of crops will remain independent and flourish. deliberations
Drivers of Consolidation
Drivers of consolidation in floriculture breeding are many faceted, including:
- The need for accessing expensive new breeding technologies;
- Succession issues in family-owned businesses;
- Access to marketing channels;
- Crop diversification to mitigate risk and to optimize use of resources (personnel, greenhouse space, equipment, etc.); and
- The need for economies of scale to drive costs down and to professionalize the business.
Acquisitions from the past decade will drive further consolidation, as increased scale and resources becomes increasingly crucial to effectively compete in the market. Bigger companies (crop platforms) can afford expensive technologies, can operate more professionally at a lower cost, and can ascertain continuity. The driving force from succession issues and technology is described hereunder.
Succession Issues in Family-Owned Businesses
As an example, some figures from The Netherlands:
- Of the total number of agricultural and horticultural businesses in The Netherlands, over 92% are a family business. Compared to the year 2000, the number of agricultural and horticultural businesses fell by almost 56% to 54,840 in 2017. The main cause is company termination with generation change. In family businesses with a head of business of 51 years or older, 61% have no successor. This means that around 20,000 agricultural and horticultural businesses are about to disappear in the coming 15 years.
- In greenhouse horticulture in The Netherlands, between 2000 and 2017 the number of companies decreased from 11,056 to 3,476, the total area decreased from 10,552 to 9,079 hectares and the average area per farm increased from 0.95 to 2.61 ha. In greenhouse-grown cut flowers, the number of companies decreased from 4,111 to 933, the total area decreased from 3,727 to 1,692 hectares, and the average area per farm increased from 0.91 to 1.81 ha. In greenhouse-grown pot and bedding plants, the number of companies decreased from 2,266 to 729, the total area decreased from 1,758 to 1,629 hectares and the average area per farm increased from 0.78 to 2.23 ha. With a stabilization in the number of companies over the last 8 years and a continuous (although slowing) increase in total area, the situation in flower bulbs is somewhat different: the number of companies decreased between 2000 and 2017 from 2,709 to 1,654, the total area increased from 22,513 to 26,676 hectares and the average area per farm increased from 8.31 to 16.13 ha.
Verdant Conclusion: Although these figures are limited to The Netherlands, it illustrates that in this important floriculture market, succession issues are to be expected at a significant scale and, as a consequence, the trend towards fewer and bigger companies will continue. Consolidation will make a substantial contribution to this trend. It is crucial that small, family-owned and/or managed businesses approaching generation change with no clear succession plan, proactively consider transition, partnership, or divestment opportunities in their overall strategy.
The Need to Access New Breeding Technologies
Due to decreasing costs and broader applicability of molecular marker-assisted breeding technologies, adoption is within reach of more and more companies. A business’s competitive position can be improved by the application of new technologies, which make the breeding process for desired traits more efficient in terms of cost and time. Ornamental value (e.g. color, shape, fragrance) comes first for every floriculture company, but other traits such as yield, shelf life, vase life and disease resistance are important as well. The prohibition on the use of certain plant protection products has considerably increased the importance of the introduction of disease resistance. Molecular breeding may accelerate that process.
Gene editing, used in a way that yields an end-product identical to the result of traditional breeding, would be another useful molecular tool for the development of desired traits. Especially because the technology allows efficient modification of traits in polyploid crops, of which there are several in floriculture. The recent decision by the European Union judicial ruling that classifies gene-edited crops as Genetically Modified Organisms (GMOs) will delay development of gene-edited floriculture and other gene-edited crops in the EU (but not necessarily elsewhere). Novel EU legislation will be necessary for gene-edited crops that allows a low-cost, short regulatory approval process and the commercial use of such crops in the EU. Such legislation is not to be expected in the near future.
Larger companies in floriculture are developing and implementing molecular breeding technologies, either in-house or with a service provider. Meanwhile, small and medium-sized companies cannot afford to develop such technologies. The same is true for companies with a diverse portfolio of crops. Although the need is present, the complexity and the considerable investment are inhibiting factors for investing in these technologies. As a result, the development of innovative varieties in these companies is not accelerated at the same pace as in bigger companies, and the competitive position of these companies is weakened.
Consolidation and collaboration are important for meeting the need to access molecular technologies. Some breeding companies have tied up to a service provider (e.g. Dümmen Orange with Genetwister). Collaboration can offer a solution if the investments are too high for individual companies. A number of companies have joined forces to jointly invest in research, development and implementation of advanced breeding technologies. Examples are Breeding Accel (KP Holland, Interplant Roses, Schoneveld Breeding and Sion Young Plants) and GenNovation (Florensis, Gebr. Vletter & Den Haan, Anthura and Dekker Chrysanten). A complicating factor for establishing the most optimal collaboration (i.e. focus on the same species) is the fierce competition between floriculture companies. Therefore, collaboration between companies active in the same crop species is often seen as impossible as demonstrated by Breeding Accel and GenNovation, where each partner is active in different crop species. Collaboration between companies active in different crops is still useful and reduces costs, but substantial investments will still be required for species-specific research and development.
Verdant Conclusion: Broad implementation of marker-assisted breeding methods in floriculture will be slow due to limited market size, huge diversity and genetic complexity of floriculture species. Consolidation, and to a lesser extent collaboration, will allow access to novel breeding technologies and give increased competitive strength. Therefore, companies facing the dilemma of restricted capital to enable the adoption of competitive breeding technologies should consider partnership and/or consolidation opportunities to stay competitive.