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Private Equity Strategies

Dealmaker Q&A: Valiance Advisors Partners With SLC Land Co. for Major Brazilian Agriculture Effort

Thursday, December 20, 2012

In a +$400m partnership, London-based Valiance Advisors and Brazil-based SLC Agricola aim to meet the demands of peak food.

By: Bailey McCann
Private Equity Strategies

One of the core initiatives of the Brazilian government, and indeed Brazilian landholders is to make the country the new agricultural hub for the world. Brazil currently ranks #1 in exports of beef, chicken, and coffee, and is on pace to overtake the US in soybean production if not corn very soon. Despite this leadership role, the government and many new investors have been active in pushing the boundaries of yield and potential farmland in an effort to ramp up production.

SLC Agricola is one of these leaders. The company is Brazil's agriculture benchmark and one of the largest listed farmland operators globally - it went public in 2007. Current market cap for SLC Agricola stands at approximately $1bn. SLC Agricola has been operating in agribusiness for 67 years, including a 20-year joint venture with John Deere.

The amount of land SLC Agricola owns and operates is 308,500 hectares, which is a land area 20% larger than the country of Luxembourg. Given this dossier, Valiance, keyed in on SLC and Brazil when it began looking for agriculture opportunities. Valiance, founded in 2007 is a London-based asset manager focused on real asset and special opportunity investing.

"We have been focused on agriculture since 2008, and looking at the opportunities landscape, Brazil is a big standout to buy and operate farms in," Mark McLornan, Head of Agribusiness at Valiance, says in an interview with Private Equity Strategies. Agriculture accounts for nearly half of the Brazilian economy and almost 40% of its jobs. The country's corn exports recently provided a critical backstop against the lasting drought in the US Great Plains region, a reality which only added to the sense of urgency Brazil's agribusiness leaders feel to keep production high.

Under the terms of the over $400m partnership, SLC Agricola will have 50.6% and will be responsible for much of the operational heavy lifting. Valiance will have 49.4% drawing revenue on the land. McLornan is quick to point out that the partnership is all about action, both firms have already made significant moves this year and will continue into 2013.

"To date our partnership is capitalized at $300m, with $180m more to be invested over the course of 2013. We currently own three large farms and are in the process of acquiring three more," he says.

The process involved around taking these acquisitions from raw land to a functioning farm will take approximately three years. That includes all the logistics of permitting, making the land ready for farming, and planting - the real work in agribusiness. However, the returns on this work are notable - over the last ten years Brazilian farmland has an appreciation of approximately 12%.

More than just purchasing more land, the key differentiator for Valiance was SLC's focus on sustainable farming models.  McLornan explains that in addition to adding acreage, SLC uses new agriculture technology to improve yield and reduce environmental footprint. Brazil has been the source of international scrutiny over how it balances the demands of its agribusiness economy against fragile local ecosystems like the rainforest. McLornan, points out that Brazil has some of the strictest enforcement on land use and environmental impact, in large part because the world is watching. Brazil requires 30% of any land purchased to remain in its original state.

"In 8 years, the world will need 100m more acres to meet agriculture demands, in European terms that's 3x the size of England. Brazil has to increase its own productivity to meet that demand," he says, noting that what often gets lost in the conversation around large agricultural operations is the realities of global population and their food needs.

"The collapse in current grain stocks is missing from the conversation. People aren't realizing that these yearly population booms are already having a significant effect on grain stocks, that will only continue," McLornan says. "People talk a lot now about peak oil. They should be talking about peak food."

This article was published in Opalesque's Private Equity Strategies our monthly research update on the global private equity landscape including all sectors and market caps.
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