NWF Group expanded north through the acquisition of feed
manufacturer Jim Peet, stoking a trend of consolidation which could be set to
accelerate as ag suppliers sell out in the face of the sector downturn.
NWF – the UK farm services-to-fuels group, which is
currently strongest in the Midlands and South West regions – said it had gained
"a strategic manufacturing site in the North" through the purchase of Jim Peet,
in the group's second acquisition in four months.
Jim Peet supplies some 50,000 tonnes of feed to dairy, beef
and sheep farmers in northern England and south western Scotland, areas where
NWF has relied for service on volumes transported from a plant in Cheshire,
undermining its competitiveness.
The takeover will "support our development plans in Scotland
and the north of England", said Richard Whiting, the NWF chief executive,
adding that the "acquisition is in line with our stated growth strategy to
expand within agriculture".
And it represents the latest sign of consolidation in a
sector which has already seen a series of deals, most recently Wynnstay's
acquisition of Agricentre in November, and could be placed for an increasing
rate of takeovers as tight farm purse strings tell.
"We could be placed for an accelerating pace of consolidation,"
Ed Hugo, head of research at London broker VSA Capital told Agrimoney.com.
"Sellers are coming down to more realistic value
expectations. That plays into the hands of consolidators such as NWF."
Takeovers may also be spurred by the enthusiasm for groups
such as NWF to support profitability by increasing their presence in specialist
product lines and services, which offer higher margin prospects.
"An additional area of consolidation may appear as these
companies look to position themselves to respond to the ongoing
professionalisation of farming, acquiring higher-margin product lines and
increasing the proportion of service-type sales," Mr Hugo said.
Shares in Carr's Group, which has particular strength in the
higher-margin feedblock market, has seen its shares post gains of some 7% so
far in 2016, compared with the falls in stock in NWF and Wynnstay.
In fact, NWF shares rose 3.7% to 181p in London on Tuesday,
but remain some 7% lower for 2016 so far.
Wynnstay share have dropped 14%.
Mr Hugo said that the Jim Peet's deal provided an answer to
NWF's "northern question - to build or acquire" to ramp up in the region.
At Shore Capital, analyst Phil Carroll termed the deal "a
strategically solid acquisition for NWF which will enable it to save
distribution costs, especially in relation to compound feed", which the group
currently transports north from a manufacturing plant in Cheshire.
"We believe it also adds some further diversification to the
types of feed it sells, slightly reducing the proportion of dairy feed exposure
of the group," he added.
NWF manufactured 567,000 tonnes of feed last year, of which
an estimated 100,000 tonnes was sold into northern UK markets.