Consolidation is the key
f&a - US market
Rl North America's world is chang-
ing. It is not just about recent eco
nomie slowdown in the US. The
whole fabric of business has been
changing for quite some time. And
Rl has changed with it.We ask
international Rabobankers around
the US what's going on and what
they've done to anticipate and
handle change.
Running scared
New players
Commercial industry
Preferred partners
High barriers
4 What'sNewS Issue 3 May/June 2001
The major reshuffle of RI's business
portfolio three years ago was designed
to refocus activities on our core food and
agribusiness. A comprehensive shake out
of the portfolio left Rl North America
with a solid basis on which to pursue the
kind of customer intimacy with top corpo-
rates that is currently being implemented
in other regions. That's not news, of
course. But nor is it the only reason that
the refocus was key to maintaining and
building our business there. The shifts that
are emerging throughout the world now
were already taking place. Consolidation
on a grand scale was changing the very
structures that had dominated food and
ag, as the Americans call it, for decades.
Any financial institution that wanted a
piece of that pie had to be ready. And Rl is
certainly ready.
But there is another shift that has to be
factored into the equation - the change in
the US banking industry's perception of
F&A. 'While it's true that consolidation
plays to our benefit because of our niche
position,' says Bob Bucklin, 'you also have
to realize that between 10 and 20% of the
syndications in the US market are food
and ag related. In the past, just about
every financial institution was a potential
syndication partner. But the current state
of play is that economie slowdown and
the issues affecting the sector, with their
inherent higher risk profile for those
institutions which don't have extensive ex
pertise in the business, mean there are
fewer syndication takers all the time. Basi-
cally, and the Wall Street Journal picked
up on the phenomenon in April, banks be-
came almost schizophrenic within the
space of weeks. A lot of them are running
scared. We've seen financial institutions
move from relationship to exit in the
space of weeks.'
Obviously, the withdrawal of a lot of play
ers also opens up opportunities for
bankers in the know. 'Sure,' Bucklin con-
firms, 'this development gives us a lot of
chances. But our approach is not about
taking risks others don't want. Or about
taking more risks. What we have to do
now is ensure our risk is calculated and
that is helped by our deep knowledge of
the industry, both here and globally. How-
ever, the challenge now is to spread the
risk we take among other players. That's
proving difficult because a lot of institu
tions don't want to know about food and
ag these days. If you add up the whole pic
ture, then I know Wink Mora in our syn
dications group believes the marker is
bleak for F&A in 2001
It's testing our creativity to
find ways we can service
our clients, usually
through structuring. We
are finding those ways
only it's not as easy as it
was a year ago. In fact,
we're seeing a lot of insti-
tutional investors coming
into what was traditionally
a banking business. That's
good news. But these play
ers also need different
structures to make partici-
pation attractive. It's a
very, very interesting time.'
Against this backdrop, the very fabric of
food and ag in North America is changing
dramatically. 'We're in the process of a
shift from the often subsidized, commod-
ity type structures common in the past,'
says head of FAR in North America, Joyce
Cacho. 'Agriculture is no longer about a
cheap food policy. It's rapidly becoming a
consumer driven, commercial food indus
try. That means it is also more dependent
than ever before on capital and financial
markets. And as the industry moves into
Consolidated production structures needed
by a commercial industry, its financial
needs change accordingly.' This consolida
tion is moving fast. Says Adriaan West-
strate of the Atlanta office and poultry
specialist, 'If you look at the US poultry
business, then you have a situation today
whereby there are around 45 major play
ers. The top four have 48% of the market;
the top eight have 65%; and the top 20
have 87%. Consolidation, particularly in
the top 20, but especially in the top 10 is
dramatic.'
The reason, says Weststrate, is simple.
'Everyone understands that retailers are
growing so fast that they are driving a
shift towards a consumer-oriented supply
chain. The retailers are also looking for
preferred supplier partnerships. That's not
only to guarantee qualitv and volume of
supply. It's also about taking cost out of
the production chain. We believe that once
major consolidation is complete, there will
be a top group of
rnaybe eight players
with 75 to 89% of the
market. That's not long
term, that's within the
next five years.' This is
where Dan Hebert's
M&A people conté in,
working closely with
sector specialists like
Roger Barr. 'Consolida
tion at this level,' Barr
comments, 'is good
news for the consumer.
Production control and
restraint as well as all
the safety and traceabil-
ity issues will be easier.
Larger concentration
will also facilitate a market-driven ap
proach that has largely been lacking in
what was for many years a commodity
type operation.'
ln the last few months, RI's poultry spe
cialists and M&A people have done
Bob Bucklin - syndication market
is challenging
