Oaklins says mergers and acquisitions in the horticultural market shows similar patterns as the edible seed market 20 years ago, when big platform companies such as Monsanto shaped the global market. Now the drivers are economies of scale, new breeding technologies and access to distribution channels.
The company says there are three-to-five "platform consolidators" plus several private equity funds actively looking to create new consolidation platforms. Oaklins gives examples of consolidators as Ball Horticultural Company, Dümmen Orange and Syngenta.
The market share of the top-three agricultural crop companies has risen from 5% to more than 60% over the past 35 years, with Monsanto (USA), DuPont subsidiary Pioneer Hi-Bred (Canada) and Syngenta (Switzerland) dominant.
Oaklins horticulture specialist Frank de Hek says: "We now see the same happening in the horticultural sector, especially in breeding, where players are consolidating to increase their distribution power and reach economies of scale to cope with changing market conditions. We expect consolidation to continue, with market players actively considering joining forces with a large industry party or being an active consolidator themselves."
The company expects five-to-eight global horticultural breeding platforms with a broad product portfolio to dominate the sector, adding: "A select number of single-crop breeders will continue to be successful as well, with key success factors being critical amongst others' mass and global activities. The transformation and consolidation in the sector will be facilitated by private equity firms, whom are actively looking to create new consolidation platforms."
Oaklins says it expects the majority of horticultural breeding companies being sold valued at EBITDA multiples ranging from 4x for small, focused companies with limited distribution power to 7x for (semi-)global players that are market leaders in a popular variety.
Over the past decade, Ball has bought Darwin, Kieft and Ex-Plant, and partnered with Florensis. Selecta is another partner, while further subsidiaries include Aris, Burpee and Ball Colegrave.
Syngenta Flowers subsidiaries include Goldsmith and Yoder, while BC Partners-owned Dümmen Orange subsidiaries include Fides, Kirin, Red Fox, Ecke and Lex+ as well as recently acquired Rijn Plant, Florexpo, Olij Rozen, Sande and GSBG.
Dümmen head of mergers and acquisitions and integration Roger Gerritzen says: "Retail clients prefer to do business with partners that are able to deliver a broad portfolio with many product varieties. Furthermore, the ability to deliver large quantities with a predictable product quality.
"With our current scale and dedication to sustainability, we are creating a huge competitive advantage compared to smaller players that can’t match our scale and efforts. Therefore, we actively participate in the current consolidation wave."
Dümmen is a big supplier to Newey Thinking, which has been a big consolidator in the UK market having taken over New Place, New Forest, Roundstone, Eagle and Avoncross recently to cover more of the supply chain and increase the breadth of offer.
Managing director Alex Newey says: "Consolidators are not short of opportunity in the current market. Newey Group remain acquisitive but in the short term are concentrating on internal convergence so that we can offer value to the market. Our goal is to increase turnover by a further £20m before the end of 2018."
Lovania, Glendale and Neame Lea are other consolidators in the UK market, having recently broadened their offer through acquisitions of companies such as young plant suppliers, herb growers, bedding nurseries and hardy plant growers. Neame Lea had a £30m investment from private equity company NorthEdge Capital in August that is planned to lead to a trebling of capacity, which could include takeovers.
A trend is also gathering pace for large garden centre and general retail garden suppliers to expand ranges, which makes the most of existing head offices, websites, catalogues, warehouses, merchandising, transport and trading relationships. This is shown by larger suppliers buying several niche companies recently.
Mr Fothergill's Seeds made its first step into diversification in August when it bought garden tools brand Darlac, which it hopes will make its business less seasonal. Smart Garden took over Chapelwood last year and now has a broad range beyond its original solar products.
Woodlodge is expected to expand its offer from outdoor pots and its new outdoor leisure to include indoor ceramics. Tom Chambers has expanded from wooden planters into plant supports, garden decorative and recently pot holders. Gardman has expanded from garden irrigation into garden lighting and decorative.
Consultant Neville Stein sums up the trend: "Yes, there is a trend for consolidation amongst the garden retail supply sectors, not least in the plant supply sector too. Typically small producers are privately owned often by a few key individuals and when it comes to exiting the business there is often an opportunity to sell to a larger competitor."