When the US-based JG Boswell Company first invested in Australian cotton in the 1960s, forming what would become the giant vertically integrated producer Auscott, the sector was still in its infancy.
The company got in on the ground floor just as the explosion in cotton planting was about to begin and emerged as one of the largest players as the market matured.
This week’s sale of the business to Australian Food and Fibre, a joint venture between Canada’s Public Sector Pension Investment Board and Australia’s Robinson farming family, marks the end of that era.
In some ways the sale isn’t very unusual. As one market source told us in mid-2020 when Auscott was put up for sale, we have seen portfolios and assets like this recycled before, including in the cotton sector. However, it is notable for the simple fact that, once again, PSP that has emerged as the victorious party.
The Canadian pension has been investing in Australian agriculture in a big way for some time now, with its portfolio growing to more than A$2 billion ($1.6 billion; $1.3 billion). It has done this through selective partnerships with local players, whether they be knowledgeable local operators like the Robinson family or experienced asset managers like Warakirri.
Its portfolio is large and diversified, albeit with a significant portion dedicated to irrigated agriculture and water, as seen by its willingness to spend A$724 million acquiring the ASX-listed Webster in 2019 before making its move for Auscott this year.
After acquiring the Midkin aggregation from Auscott in 2019, PSP (and its AFF joint venture) was seen by many as the most logical buyer for the rest of the business.
But multiple sources have told Agri Investor that it was not necessarily a clear frontrunner throughout, with a highly competitive process attracting interest from a range of buyers around the globe.
A new infra subsector?
Interestingly, Australian superannuation funds took a close look at the business, assessing Auscott as an asset that could slot into their infrastructure portfolios thanks to its network of cotton gins that process third-party cotton, as well as its extensive portfolio of water entitlements.
This led at least one global infrastructure fund to run the rule over the company as well, according to a source familiar with the situation, as the weight of capital in that sector continues to search for assets that would not have been considered infrastructure even just a few years ago.
The fact that Auscott could be assessed in this way is also a reflection on the strong performance of farmland and agribusinesses generally over the last 18 months, as a great number of these companies – – climate and commodity price risk aside – showed relatively strong returns and low volatility compared with most other asset classes.
It shows that the pool of potential buyers for large-scale agricultural assets has grown, as well as signaling that the trend towards more consolidated operations attractive to institutional-scale capital is not going away any time soon.