Paine Schwartz pursues take-private of Australia's Costa

The US-based private equity firm, formerly known as Paine & Partners, is willing to buy all outstanding shares for AUD 3.50 apiece in cash, not including an interim dividend payment that can be made to shareholders. The price represents a 24% premium to the July 3 close. Costa’s stock surged 12.8% on July 4, closing at AUD 3.34 and giving the company a market capitalisation of AUD 1.55bn.

Paine Schwartz bought a 13.78% stake in the business last October for AUD 2.60 per share, according to a filing. The two sides held talks in April regarding a potential buyout, with Costa indicating that any offer should be priced in the AUD 3.20-AUD 3.30 per share range.

The private equity firm, which specialises in sustainable food chain investing, first backed Costa in 2011, taking a 50% stake. It supported the bolt-on acquisition of Adelaide Mushrooms, South Australia's number one mushroom producer, in 2013. Efforts were also made to optimise Costa’s product offering, invest in protected cropping, and accelerate exports by what was a historically domestic business.

Costa went public in 2015, pricing its shares at AUD 2.25 apiece and raising AUD 550m. Paine Schwartz reduced its holding from 54.2% to 12.4% through the offering. It realised proceeds of approximately AUD 205m and was left with a position worth AUD 87.5m based on the IPO price. The private equity firm completed its exit at a later date via public market sales.

At the time of the IPO, Costa was Australia’s largest horticultural company and the largest fresh produce supplier to major domestic food retailers, operating 3,000 planted hectares of farmland, 20 hectares of glasshouses, and seven mushroom-growing facilities. Revenue reached AUD 699.1m in 2014, EBITDA came to AUD 69.5m and the company posted a net loss of AUD 1.9m.

Today, Costa claims to be Australia’s leading grower, packer, and marketer of fresh fruit and vegetables, primarily focusing on berries, mushrooms, glasshouse tomatoes, citrus, and avocados. It has approximately 7,200 hectares of planted farmland, 40 hectares of glasshouses and three mushroom-growing facilities, as well as joint ventures covering six berry farms in Morocco and four in China.

The company was challenged in 2022 by extreme weather conditions and cost inflation pressure. Revenue rose from AUD 1.22bn to AUD 1.36bn, but EBITDA fell from AUD 218.2m to AUD 214.8m and net profit dropped from AUD 52.2m to AUD 47m.

Costa identified China as a key growth market, with revenue rising 34% year-on-year in 2022. It had 400 planted hectares in the country and wanted to reach 700 hectares by 2026.

Paine Schwartz has USD 5.5bn in assets under management. The firm closed its fifth fund on USD 1.45bn in 2019 and launched its sixth vehicle last year with a target of USD 1.5bn, according to LP disclosures.

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• Topics
• Australasia
• Buyouts
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• Industrials
• Australia
• Paine & Partners
• Agriculture
• food & beverage