The agritech sector has been one of NPM Capital’s strategic investment sectors for a number of years. This led NPM to enter into an alliance with Hillenraad Partners, market leader in the field of strategy and additional services for food, horticulture, supply and starting materials (propagating materials, plants and sowing seed). Rutger Ruigrok, Managing Director of NPM Capital, explains why this sector has such tremendous potential and why above all long-term growth capital can capitalise on it.
HAK, Continental Bakeries, Royaan: NPM Capital has an impressive track record in food companies. Does this new focus on agritech dovetail with this?
‘You’re right that we invested a great deal in the middle of the food chain between roughly 2005 and 2012. But at a certain point we saw this segment coming under increasing pressure due to a number of trends. That’s why we changed our investment strategy and began concentrating more on the front end of the chain. This brings you into contact with very different kinds of companies, namely those that focus primarily on making agriculture and horticulture more efficient, often with the aid of technology. Examples include seed breeding companies, growers, manufacturers of special agricultural equipment and milk robots, etc. We find these types of companies very attractive at the moment and want to focus more on them.’
What makes these companies so attractive?
‘This relates to the supra megatrend: the world population will grow considerably in the coming decades, while the amount of available agricultural land is more likely to decrease. So there is a threat of a scarcity of resources. The answer consequently lies in utilising these resources more efficiently by using technology and these companies fulfil a pioneering role in this regard.’
Doesn’t it take vast expertise to be able to properly track these specialised companies, let alone value them?
‘Absolutely. That’s why we haven’t done this overnight. We first set up an Agritech Advisory Board. Four leading experts agreed to serve on this board. Aalt Dijkhuizen, who is the former Chairman of the Board of Directors of Wageningen UR and a supervisory director at different agritech companies, including Hendrix Genetics. Entrepreneur Jan-Willem Breukink, who is the former CEO of Incotec and exceptionally well-versed in the world of seed breeding. Kees Aarts, who is the founder of Protix Biosystems, an innovative company that focuses on the production of scalable, stable and high-quality insect protein. And Emmo Meijer, who had an illustrious career in R&D at DSM, Unilever and FrieslandCampina and is now Chairman of the Board of Directors of TKI Agri & Food.
We meet with these four members of the Agritech Advisory Board several times a year and discuss the studies we carry out with them. They help us distinguish between the attractive and less attractive developments and their large networks open doors to companies that are of interest to us.’
Why is the agritech sector such a good fit with NPM Capital?
‘The agrisector is generally cyclical in nature. So you must take a long-term view to be able to metaphorically see through those cycles. You won’t be able to do that if you have a shorter-term investment horizon like most investors do. If you then have to exit at the wrong moment in the cycle, your investment could easily turn out to be a failure. We can handle this much better based on our long-term investment horizon. Another reason is that a large number of excellent family-owned companies are active in this sector and we often have more of a natural click with these companies than the average private equity fund does. We traditionally have extensive experience with family-owned companies – we know how they think and understand the sensitivities. And if the situation calls for it, we are also satisfied with a minority stake.’
You have also entered into a strategic alliance with Hillenraad Partners. Why have you taken this step?
‘Martien Penning, the founder of Hillenraad Partners, has studied this sector in-depth and many companies see him as a trusted advisor. He is also a master bridge-builder. Martien in turn really likes our painstaking strategic approach. He truly sees NPM Capital as an organisation that could bring about consolidation within the agritech sector, which is currently comprised mainly of smaller family-owned companies that want to grow, but cannot independently roll out a buy-and-build strategy successfully. With our profile we can play an important support role in this process.’
In closing: Are there any concrete acquisitions on the cards at this time?
‘We have now met with numerous companies and have also conducted talks with a number of them. These talks were partially exploratory, but also partially more concrete, for example about what form a potential alliance might take at some point in the future. Or to stick to the terminology of the sector: we are now mainly sowing. And we must sow carefully now in order to be able to harvest later. You have to get to know each other, build trust and show that you genuinely understand the business. Taking big steps and immediately shifting into top gear does not work with these kinds of companies.’
