During the past four years, we have had the privilege of working with the developers, marketers, and adopters of the digital and precision technologies that are changing and improving the global agriculture segment. Preparing this year’s installment of Verdant’s annual AgTech M&A Landscape was a great reminder of how dramatic the growth has been and how important agtech has become to our industry, and we have seen only the tip of the iceberg. The global pandemic contributed to a slowdown of market expansion and grower adoption of digital and precision tools in 2020 but did not phase M&A volume. Verdant observed over 35 completed deals in 2020, comprised mostly of agronomic data collection and analytics, farm operations and profitability management, irrigation control and management, and biologicals technologies. Biologicals are an industry segment of their own, but we have incorporated the deals in our analysis for comparability to past installments. Much like 2019, transactions of U.S.-based companies represented over 50% of total deals in 2020, followed by Europe (19%), Canada (14%), and Asia (11%). A few other trends were observed this past year that should be indications for 2021:
Deal activity between like-kind technology providers grew, illustrating the market’s demand for integration of niche products and services into a more complete offering. We expect independent players across the data collection, analytics, and management verticals to continue consolidating to offer more robust solutions through a single user interface.
Transactions in irrigation technology, driven by Valmont and CropX, grew considerably in 2020. The precision water monitoring and control segment demonstrates measurable cost savings to growers while lessening management time and resource usage, a combination that will surely lead to more acquisitions, especially by strategics and retail distribution participants.
There was an increase in acquisitions made by buyers outside of the traditional major agribusiness players, the Telus rollup being the most noteworthy. Verdant also received a significant increase in inbound M&A inquiries from groups completely outside of food and agriculture in 2020.
In parallel with strong market adoption and growth, the biologicals space accounted for nearly 25% of the total deals closed in 2020. This was largely driven by sustainability initiatives from consumers and policymakers, improving biological product efficacy, better financial results, and increasing crop tolerance to conventional alternatives. We expect to see continued consolidation of biologicals companies in 2021, particularly those companies with proprietary formulations and proven market penetration.
The demand for and utilization of technology in agriculture increases each year, but it is important to not overlook the challenges in the space as we move ahead in 2021. Tech companies continue to struggle with a path to market. Groups selling direct are deterred by the cost and time required to scale, while those working through established channels rely on partners and lose selling prioritization and product/branding differentiation from other competitive solutions. Meanwhile, customers are demanding greater integration, better service, and lower costs for technology. Additionally, agtech investment capital continues to age, and many funds will look for closure in the coming years, even as valuations soften. The combined situation may lead to an increase in distressed acquisitions above those in the past two years, although financial and strategic buyers are still willing to increase valuation based on the future potential of quality technology’s impact on the market.
Despite several difficulties, the ever-growing demand for greater profitability, productivity, and sustainability will push the need for digital and precision tools. Similar to predictions made for 2020, Verdant believes resource efficiency technologies (water, energy, and soil health) and profitability optimization through integrated data collection and analytics will drive consolidation in 2021. Also, worth mentioning is the growth of carbon platforms and the demand for digital measurement, monitoring, and marketplaces to support this sector, which will be more efficiently acquired rather than built.
We hope that you will enjoy our included AgTech M&A Market Map showing completed deals from 2020. If we are missing relevant transactions, please let us know. Should you have questions or be interested in exploring opportunities together, the team at Verdant Partners remains eager to assist in the execution of your M&A strategy.
About Verdant Partners
Verdant Partners is wholly focused on food and agribusiness. We advise buyers and sellers through the business transactions that shape the competitive landscape of our industry. We have built a team of professionals with real world industry experience, having developed skills that extend beyond those of traditional M&A advisors. For this reason, we are recognized as the leading transaction advisory group for the global food and agribusiness industry.
Director, Verdant Partners