How does acquiring a company in the fruit and vegetable sector differ from other sectors? "Capital intensity and the need to innovate" are two aspects Rutger Groenewegen of Groenewegen & Lukaart mentions without hesitation. This Dutch company offers support and advice regarding (buying), valuing, and financing companies.
That is one reason Rutger sees adding to the increasing disinclination of agricultural and horticultural family businesses' next generations to take over said companies. "It's very challenging, making a transfer within the family being the most obvious choice is questionable," he begins.
Scale and innovation
Besides a successor's willingness to take over a business, Rutger notes that suitability also plays a role. Is the intended successor capable? These days, he adds, demand is placed on entrepreneurship where innovation and scale are concerned. "You must move with the times and be able to scale up. The yield per square meter must remain high so you aren't priced out of the market. For that, you have to innovate; otherwise, it won't work. But scale is important for bank financing too; they only finance certain-sized companies."
Capital is, thus, a hurdle, observes Rutger. In a possible family takeover, the company to be acquired is often (partly) the parents' pension and any other children's financial compensation is also of consequence. Whereas banks are often unwilling or only partially willing to finance that, private investment companies regularly see funding opportunities for companies in, say, the greenhouse horticulture sector and the supplying industry. "They take a much more in-depth look into returns, how much risk there is, what needs to be invested to make a company future-proof," he says.
Output and profits wanted
Sometimes, the obstacles prove too much to warrant a takeover within the family. According to Rutger, in such cases, people often look to fellow business owners, but even then, private investment can be an option. He notes that such a route will involve business operations changes, though.
"An acquisition by a similar family business won't bring about much change. Private investors, however, consider companies in more of a business light, steering more toward output and return. That can affect staff - often from the selling family - who have to deal with a different shareholder." Rutger says private equity parties have different goals for family businesses and will want to sell after five to 15 years. "They move on to the next project. That's something you have to take into account," he explains.
Searching for expansion
Rutger finds where banks mostly want surety, private investors - people who financially participate in unlisted companies with risk capital - are willing to take risks. That, of course, comes with a price tag. In the Netherlands, bank financing has long carried low-interest costs and now sits at around six percent; for private equity, ten to 15% interest rates are commonplace.
So, private investors focus on profitability, says Groenewegen. "They look at products' life phases and won't invest in companies or products at the end of a certain life cycle, the so-called cash cow. They want to invest in an earlier phase with growth opportunities so they can use that cash cow for new investments. Private equity always wants to realize growth and returns."
Global application opportunities
The profitability in sectors like healthcare and food makes them popular with private equity parties. "Cycles don't affect these sectors. There will always be demand for healthcare and food," continues Rutger, who foresees that climate change will increasingly necessitate climate-controlled crop cultivation in other parts of the world. "These challenges can benefit the Netherlands because we have the knowledge, technology, and innovation power. That's why private investors are interested in Dutch agriculture and horticulture companies, not only because of what they do but especially how you can copy that because there are many application possibilities worldwide."
As much as Rutger is sure of great opportunities for especially the sector's larger companies, he does not see those lying in the Netherlands. He sees Dutch glasshouse growers, for example, increasingly expanding in other European countries, North Africa, and even Canada. Private investors, too, are focusing abroad.
Spread
"Private equity partners take a far wider view than just the Netherlands, including overseas opportunities. In larger suppliers, they're particularly interested in international expansion or companies that already have acreage abroad," says the financial specialist, citing greenhouse builders as an example. They currently earn little in the Netherlands, where some greenhouses even stood empty due to the energy crisis. "But a great deal is happening in that area in North America and the Far East."
Rutger points out that private parties automatically come into the picture when it comes to foreign investments because banks, with their primarily local focus, will not finance such projects. He often sees an interplay between banks and private investors when financing a company. "That combination is increasingly sought; those parties can reinforce each other. Sometimes a bank finances the non-risky part, and when things get a bit iffy, private investors take over. Then banks don't have to take on more risk than they want to."
Looking abroad is the smart thing to do, thinks Rutger. Not only is it less risky, but that is also where the opportunities lie. "By expanding internationally, you don't put all your eggs in one basket. The energy crisis, for example, showed that Dutch greenhouse companies have it tough when it comes to selling prices; they struggled to heat their structures. But in, say, warmer Morocco, far fewer gas-heated greenhouses are needed, and there's more natural heat. That spread can reduce risks. Doing business only in the Netherlands can also be risky," he concludes.
For more information: 
Rutger Groenewegen
Groenewegen & Lukaart
Rotterdam office
Escudostraat 37
2991 XV, Barendrecht
Tel.: +31 010 – 522 68 00
[email protected]