Leading agriculture machinery maker CNH announced yesterday the takeover of Raven Industries, a portfolio company, for $2.1bn including debt. Raven is mainly known for its precision agriculture and autonomy technology with a range of products covering machinery guidance & steering, field computers and data management. Raven is also active in two other businesses (engineered films and Aerostar) that are likely to be divested by CNH.
Raven is CHN’s largest M&A deal to date, a clear illustration that digital and autonomy features are making significant inroads in the machinery business. More globally, this deal shows that the agriculture (and food) industry, which is lagging other industries when it comes to digital adoption and transformation, is now playing catch-up, then offering significant growth prospects to pure agritech players.
The financial details of the transaction are quite attractive for Raven shareholders as they point to a significant premium (50% over the previous closing price, 34% over the four-week volume-weighted average stock price) and high valuation multiples (PE close to 40x). In our view, CNH’s willingness to pay such multiples (with no EPS accretion in the near future) can be explained by the strategic nature of Raven’s autonomy operations and by the scarcity of pure players in the agritech space.
Overall, this deal confirms our view that we are in the very early stages of a major M&A wave in the agritech (and foodtech) space as large agriculture and food companies seek to step up their digital capabilities and/or enjoy a strong farming environment and as Tech start-ups gradually mature and become viable or more predictable businesses.
The weak number of listed players in the various agritech segments (digital/software, proteins, bioengineering, indoor farming…) also suggests that these companies could enjoy a scarcity premium, likely to sustain the performance of our Food Revolution certificate in the near future.