Two recent meat industry transactions have enhanced long-term value for both livestock producers and the stakeholders in the meat processor. Each of these transactions has provided livestock producers with a closer link to consumers. By differentiating their products for select retail channels, these producers continue to capture above-average returns. These transactions also increase shareholder value of livestock producers by providing continued market access and market price stability.
The Sioux-Preme transaction–funded partially by a unique, private equity capital pool in Iowa, the Tecterra Food Capital Fund–involves:
- Livestock producers acquiring an equity stake in a strong middle-market pork processor in
- Servicing niche markets by differentiating hogs by breed for high margins.
In the Superior Farms transaction, a major veal & lamb processor acquired a regional lamb processor:
- Creating a stronger meat industry player in this specialty meats segment;
- Consolidating supply & processing to focus on high-end markets,
- Ensuring regional market access, with a competitive role in the center of the plate market.
These two transactions demonstrate how growth capital infusions can improve capital structures and create new value for livestock producers, shareholders and customers. The catalyst in each of these transactions is Cybus Capital Markets, LLC, a consistent performer in applying growth capital to engineer changes for middle market food and ag-related industries. Transforming growth capital problems into creative structures benefited all the stakeholders of these two businesses: producers, processors, customers and consumers.
Organized in 1969, Sioux-Preme Packing had survived the Midwest meat industry consolidation wars. Under the direction of Ken Mouw, Sioux-Preme is now a processor of specialty pork– procuring hogs already differentiated for high value in downstream markets and bringing them to the Sioux-Preme processing facility in Sioux Center, IA.
Sioux-Preme’s growth has been driven by growing consumer markets:
- Responding to consumer demand for better pork quality,
- Concerns about antibiotic residues in meat;
- Selecting for genetics,
- Processing hogs classified as lightweight, free-range, organic, purebred or natural.
Ranked among the Top 150 Pork Processors by National Provisioner, Sioux-Preme has been consistently profitable for the past several years, processing 700,000 specialty pigs per year. There remains growth potential in this market and in Sioux-Preme’s capacity to processor more hogs as demand is stimulated for specialty pork products. The tecTERRA Food Capital Fund assisted Sioux-Preme in refinancing for a profitable future, and arranged for groups of pork producers to acquire equity positions in Sioux-Preme.
TecTERRA Food Capital Fund
- Is a $43 million equity pool created by the State of Iowa to invest in value-added processing and biotechnology; $25 mm from Iowa and $18 mm from private investors.
- Funds are designated for investment in food or agricultural product processing businesses.
- Fund created by Iowa legislature and supervised by the Iowa Agricultural Finance Corporation (IAFC); managed by Cybus Capital Markets.
- Cybus has been making investments with tecTERRA funds since August 1999.
- TecTERRA seeks investment candidates with high growth potential to return more value for Iowa producers, and with the capability to permit direct product participation through novel capital structures.
A closely hold California meat company with a 30-year history of innovation and profitability in the veal and lamb business, Transhumance Holdings, Inc. (DBA Superior Farms) is the largest US supplier of lamb and veal. Employee-owned, Superior Farms is a fully-integrated meat supply chain from ranch to retail. In July 2000, Superior Farms acquired Mountain Meadow Lamb; creating a stronger position in the lamb market.
Cybus Capital structured the transaction of the Mountain Meadow Lamb acquisition to:
- Avoid diluting current Superior shareholders;
- Keep intact the highly motivated employee base;
- Increase shareholder value in Superior,
- Continue supply of high-quality lamb and veal and
- Sustain a competitive market for lamb and veal producers.
Though the capital sources in the Sioux-Preme and Superior Farms transactions were different, the infusion of new capital in each was inspired by Cybus’ broad understanding of the importance of stimulating growth opportunities through capital structure changes and assuring a future for middle-market food businesses. Cybus’ ability to deploy capital from an existing dedicated equity pool or attract equity capital from other sources for these platform companies demonstrates a rich field of opportunity in the middle market food and ag sectors.
Topics relating to these and other transactions will be discussed by representatives of Cybus Capital and Sioux-Preme Packing at Moving the Markets: Profting from the Growth of Food and Agri-Tech Companies on December 5th, 2000 in Toronto Canada.