With $4.2 bn Arysta deal done, UPL is world's top-5 farm solutions firm

Post acquisition, combined sale will go up to $5 bn, UPL gets access to African, Russian and Eastern European markets, entry into sugarcane and coffee, where it has remained largely absent

Agricultural input company UPL Ltd has announced the completion of its $4.2 billion acquisition of Arysta LifeScience Inc, the global leader in bio solutions and seed treatment. With this the company has become the fifth-largest agri solutions entity in the world.

The agreement effecting this transaction was signed in July 2018. UPL acquired Arysta through its wholly-owned arm, UPL Corp, in which Abu Dhabi Investment Authority (ADIA) and TPG infused $1.2 billion to acquire 22 per cent stake, with UPL Lts holding the remaining 78 per cent. UPL Corp borrowed $3 billion from domestic and foreign banks and financial institutions to fund this acquisition, taking its overall debt to $3.8-3.9 billion as of March 31, 2019.

Prior to this acquisition, UPL and Arysta were the seventh- and tenth-largest agri solution companies, respectively, in the world. Following this deal, the company’s combined sale would go up to $5 billion with EBITDA of $1 billion and EBITDA margins of 20 per cent. UPL Ltd's promoters hold 28 per cent stake in the company, with the rest is held by banks, financial institutions and the public.

Explaining the synergy between the two companies post acquisition, Vikram Shroff, Vice Chairman of UPL said, “There is a complete synergy between the two companies to make a new UPL, with all agri solutions in place. While UPL Ltd is very strong in manufacturing, Arysta’s strength lies in formulations. Coming both together would complete the entire agri value chain with focus on further growth opportunities.”

The acquisition of Arysta would allow UPL to strengthen its presence in the markets in Africa, Russia and Eastern Europe. UPL enjoys its strong presence in India, Americas and Western Europe. UPL is very strong in registration and product development capabilities focused to speed to market, Arysta offers a unique asset-light model, underscoring high capital efficiency with exposure in fast growing market segments and niche crops such as sugarcane and coffee, where UPL remained largely absent.

The acquisition is expected to drive annual synergies of over $200 million with earning per share (EPS) accretive by Rs 10–12 in the financial year 2020.

Explaining the risk involved in the agri solution business due to vagaries in climatic condition, Shroff said, “We always factor in that one of the four markets (Asia, Africa, Europe and Americas) may not perform well due to the change in weather condition. Also, we enjoy solutions in every aspect of agricultural crops including weed, insects, drought resistance. In such case, we have the flexibility to shift to another solution.”

Amid high volatility, the UPL stock closed with a marginal decline of 0.87 per cent, at Rs 770.75, on the Bombay Stock Exchange.

Sagar Kaushik, Chief Operating Officer, UPL Ltd said, “The world would have a nine billion population by 2050 as against 7.2 billion now. With steady decline in land holding size due to rapid urbanisation, the overall agricultural area is set to shrink. Also, gradual migration of rural people to urban cities would call for quality food with required nutrients. This improves prospects for agri solutions companies as they have the capability to deliver the required food in future.”