Deal focus: Navis secures its golden egg

There are five types of egg farming in New Zealand: small-scale backyard operations; conventional cages that accommodate a larger number of chickens; colony cages with more space per bird; barns, where there is freedom of movement indoors but not outdoors; and free range facilities.

The majority of the country’s commercially produced eggs are farmed in conventional cages, with free range and barn operations accounting for 14% and 3%, respectively. Under animal welfare regulations, conventional cages must be phased out over four years from 2018. But even the transition from cage to colony cage will be challenging for many farmers who must rebuild their farms from scratch. The Egg Producers Federation estimates the total cost will be more than NZ$100 million ($69 million).

It is against this backdrop that Navis Capital Partners has agreed to buy a majority stake in Mainland Poultry for an enterprise valuation said to be just under NZ$300 million. There is a succession planning issue – the company’s principal owners have been involved for 20 years – but the sale was largely driven by the need to address structural change in the industry.

“Throughout the Western world populations want to buy eggs produced by hens that have been well looked after – they are prepared to pay a premium for an egg laid by a bird that goes outside. There are also regulations on the amount of space available per bird,” says Philip Latham, a partner at Navis. “These changes will take place over the next five years in New Zealand and it involves a lot of capital expenditure.”

Mainland is a fully integrated business, producing feed using its own grain, rearing day-old chicks, grading and packaging eggs, and processing egg products. The company is also the clear domestic market leader: it has more than 1.2 million layer birds across seven farms – one fifth of its eggs are free range and the rest are farmed within some sort of building – and its Farmer Brown and Woodland brands are responsible for about 35% of all eggs sold commercially each year in New Zealand.

Navis will help Mainland modernize its production facilities, but this is just one part of the value-add thesis. Mainland’s birds are the most efficient in the world, laying 99 eggs every 100 days compared to 85 eggs in most farms, and the GP wants to take this technology to other markets in Asia. This angle, underpinned by previous experience in the poultry industry elsewhere in the region, helped Navis secure the buyout in the face of competition from other private equity firms.

“If you know what you’re doing and have many years of data, you can tweak those little dials, whether it’s to do with the food and water a bird is consuming, the temperature of the barns, susceptibility to disease, or the social environment in which the birds are living,” says Latham. “We want to understand how we can translate the learnings from New Zealand through to Asian markets.”

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• Topics
• Australasia
• Buyouts
• Consumer
• New Zealand
• Agriculture
• Navis Management