Paine Schwartz to buy Australia's Costa Group

The US-based private equity firm, formerly known as Paine & Partners, will pay AUD 3.20 per share through a scheme of arrangement, according to a filing. It is leading a consortium that also features US-based berry supplier Driscoll’s and British Columbia Investment Management. The consortium already owns 19.62% of shares currently on issue.

The price represents a 43% premium to the closing price on October 25, 2022, after which Paine Schwartz acquired a 13.78% stake in Costa for AUD 2.60 per share. However, it is lower than the AUD 3.30 per share offer submitted by the private equity firm in July. Costa’s stock closed up 6.2% at AUD 3.09 on September 22, giving the company a market capitalisation of around AUD 1.44bn.

Neil Chatfield, Costa’s chairman, said the board’s unanimous endorsement of the scheme was based on factors such as “potential risks relating to the future execution of Costa’s business growth plan and the price at which Costa shares could trade over the medium to longer term if it continues as an independent company.”

Paine Schwartz is familiar with the asset, having previously acquired a 50% stake in 2011. 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 reached AUD 1.36bn for the calendar year, up from AUD 1.22bn in 2021, but EBITDA-S (which excludes fair value movements in biological assets and material items) 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, which specialises in sustainable food chain investing, 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
• Consumer
• Industrials
• Australia
• Paine & Partners
• Agriculture
• food & beverage