GRAND RAPIDS — A West Michigan investment company has completed the first in what it hopes to be a string of acquisitions of independent, regional seed producers.
In a deal that closed last week, Tillerman Seeds LLC of Grand Rapids acquired the assets of Dansville, Mich-based D.F. Seeds Inc., a 25-year-old independent supplier of soybeans and wheat. The company has a customer base of more than 400 farmers and specializes in varieties that grow well specifically in Michigan’s climate, as well as non-GMO seeds.
Terms of the deal were not disclosed. DF Seeds President Chris Varner will continue in her position and run the company going forward.
Tillerman Seeds recruited investors from throughout Michigan to participate in the deal, including executives from the manufacturing and agribusiness sectors.
According to Tillerman Seeds CEO James Sheppard, this first deal serves as a proof of concept for the company’s business strategy.
“We see there’s a lot of independent, small, regional seed companies out there that maybe have an owner looking for liquidity or maybe getting close to retirement,” Sheppard told MiBiz in an exclusive interview. “They want to preserve their jobs for their people, they want to preserve their legacy. They don’t want to go through where they sell and there’s a roll-up with the company and everything changes.”
In the DF Seeds deal, Wells Fargo provided senior debt financing and a revolving credit facility for Tillerman Seeds, which was advised by the Grand Rapids office of law firm Barnes & Thornburg LLP. The seller was represented by Dickinson Wright PLLC, also out of Grand Rapids.
Tillerman Seeds looks to acquire profitable independent seed companies that have a regional presence and annual sales in the $10 million to $30 million range, mostly in the northern U.S. The investment company wants to preserve its acquisitions’ local identities and brands and operate them as standalone entities, while sharing back-office functions like human resources, accounting and purchasing, according to Sheppard.
Adding other companies would also present opportunities to cross-sell product across Tillerman Seeds’ portfolio and leverage the collective brainpower of various managers and salespeople, he said.
“This isn’t a roll-up type deal where we buy a bunch of companies and change all their brand identities to a single brand. Our intent is to keep everything local,” he said. “If the company is successful, then really the very last thing that we want to do is invest into it and then go in and change everything. That would be the fastest way to make it unsuccessful.
“Every small company has a character and a quality that they’ve developed over the years. You don’t touch that. That’s why customers go there and we want to continue that piece of it.”
Tillerman Seeds prioritizes leaving in place the local management teams, as well as filling its bench with seasoned agribusiness veterans, including Sheppard, who formerly held executive positions at Carson City, Mich.-based Harvey Milling Co. and United Agra Products.
The importance of maintaining local control and bringing in experienced agricultural executives cannot be undersold in a highly personal industry like agribusiness, said Todd Martin, the CEO of the Independent Professional Seed Association, a national trade group. Varner of DF Seeds sits on the group’s board.
“They’re leaving the management in place who are qualified to be able to do this,” Martin said, who noted that in his three decades in the industry, he’s seen many well-planned concepts fail because they were poorly executed on the local level.
In particular, he said it’s important to maintain the close, local relationships existing companies have with their customers — the farmers.
“Seed is the most emotional purchase that a farmer makes in a year, it is absolutely true,” Martin said. “As companies look in the space, they have to be cognizant of that fact. If they don’t, it leads to mistakes in management. That needs to be at the forefront of anyone’s mind.”
As Tillerman Seeds enters the market at the small producer end, the seed market is also consolidating rapidly at the other end of the spectrum. Bayer AG of Germany has proposed a $57 billion merger with St. Louis, Mo.-based Monsanto Co. that’s still under regulatory review in the European Union. Also under review is China National Chemical Corp.’s $43 billion takeover of Swiss seed company Syngenta AG.
Closer to home, Midland-based Dow Chemical Co. recently acquired Wilmington, Del.-based DuPont Co. in a deal that will eventually split the conglomerate into three separate companies, one of which would focus solely on agriculture. The combined companies would be worth more than $120 billion, according to reports.
But amid industry giants, small seed producers still maintain a corner of the market, sources contacted for this report told MiBiz. According to Martin at the Independent Professional Seed Association, the market share for independent corn and soybeans spans from 18 percent to 22 percent for both crops.
To Sheppard, Tillerman Seeds’ portfolio companies can offer farmers seeds that are tailored to their needs more than a product from one of the conglomerates.
“The competitive advantage of an independent is that they are more flexible, they’re nimble, they can change direction quickly,” Sheppard said. “They can develop products quickly for a very small geographic area. Where the national brands when they produce or select genetics, they’re looking for large geographic area — multistate performance — versus something working really well in a two to three county area. That is a competitive advantage that the small guys have.”
OUTLOOK FOR DEALS
As Tillerman Seeds focuses on digesting its first acquisition, the company already is in talks with other seed companies, Sheppard said. The company has tapped Tillerman & Co., a Grand Rapids-based investment and merchant banking firm that advised on the DF Seeds transaction, to help it source other deals and drive growth for the business.
In particular, Tillerman Seeds looks to complement DF Seeds’ soybean and wheat with capabilities in other row crops.
“One of the things that DF does not have is a corn program — they’re strictly soybeans and wheat,” Sheppard said. “If we can bring in another company that has a strong corn program, that would round out our offerings to our customer base.
“There’s other companies that are small and regional that have developed specialty products, either non-GMO products or ancient grains — things like that — that are looking for additional distribution, that are looking for marketing help and other opportunities in different geographies.”
Sheppard said because Tillerman Seeds isn’t looking to do a classic roll-up of the companies, its plans are to operate the profitable businesses that return dividends to their owners and that continue to provide local service to customers.
It’s a model that others in the agribusiness industry are watching, as well.
“This presents a real opportunity for smaller seed companies to share unique technologies, pool resources and develop new seed types and varieties for a diverse market,” Jim Byrum, president of the Michigan Agri-Business Association, said in an emailed statement. “The leadership in these companies is innovative and creative, and will bring new value to the genetic and seed sector.”