“The number of merger and acquisition (M&A) transactions in the overall economy dropped by nearly 50 per cent after the announcement of a Covid-19 virus pandemic. Due to the uncertainty for future financial results, both sellers and buyers were active with managing their own business, and banks were putting acquisition finance on-hold. But what is the impact on the consolidation trend in the horticulture industry, and specifically among ornamental growers?
Let us start with what is happening in the entire floriculture value chain. The global M&A activity within the floriculture industry has been growing over the last years. Important drivers are the further professionalisation of the sector, increasing knowledge base, pressure from large retailers, succession issues as well as the increasing appetite from investors.
Certain parts of the horticulture value chain have experienced a more substantial consolidation than others. Especially in breeding, the consolidation drivers are the strongest. Subsequently, platforms emerged that acquired many smaller peers. At the other end of the value chain, mass retail and online channels are gaining considerable market share. Mass retailers prefer to deal with large counterparts, and with a lack of large growers to do business with directly, they turn to wholesalers. Subsequently, wholesalers are also increasing scale, both organically and by acquisitions. As part of a highly scattered financial landscape, growers find themselves in a squeeze between larger counterparts, which puts pressure on their profit margins.
In addition to the changing supplier, wholesaler and retail landscape, several other market dynamics are impacting the world of growers. For example, the increased technology standards, shifting consumer preferences, the increased importance of marketing, fair trade, and sustainability (certificates) are becoming an industry standard and increased activities in low-cost countries.
Together, with many companies having succession issues at management level, these factors emphasise the urge for more professional and larger growers, and preferably platforms that can supply their clients with a broad spectrum of products, and that fit into mass retail’s category management approach.
These factors result in the need for increased scale, which can be realised organically or via acquisitions. Players active in North America have reacted to these drivers already a decade ago, where for example Altman Plants and Costa Farms have grown, especially on the back of acquisitions, to a combined market share of more than 10 per cent. We see a similar trend in Africa and Asia. In Europe size increases do take place, but at a slower pace than North America. As for Europe, we, however, expect the number of acquisitions to accelerate as well as to see more sizeable acquisitions, similar to what emerged in the North American ornamental market and the European fresh produce industry approximately ten years back.
However, Covid-19 has put a hold to the number of M&A transactions. As we seek to navigate around Covid-19, will the consolidation continue? Without doubt. The underlying consolidation drivers remain as strong as before. I will give more insights during my digital presentation at the AIPH International Virtual Conference (‘Recovery from Crisis, the future of ornamentals’) on Tuesday 15th of September. Hope to see you there.