Lessons of the Non-Tech Acquiring Tech Deal Of The Month

May 2021: Valmont Industries acquires Prospera for $300m

Crop Irrigation over a field

On 5 May 2021, Valmont Industries, a US-based leader in the design and production of mechanised agricultural irrigation equipment, announced it had acquired Prospera, an Israeli crop analytics startup, for a headline price of $300 million.

Tech – Prospera

Founded in 2014 in Tel Aviv (Israel), 100 employee Prospera is a developer of machine vision technologies that continuously monitor and analyse plant development, health and stress. The company’s platform captures multiple layers of climate and visual data from the crop field and provides actionable, easy-to-read insights to growers via mobile and web dashboards. As of 2020, Prospera claims to process 50 million data points daily, with 4,700 fields and $5 billion worth of produce monitored. The company had previously been backed by, among others, Bessemer Venture Partners, Qualcomm, Cisco and Tekfen Ventures.

Non-Tech – Valmont

Founded in 1946 in Omaha, NE (US), 10,000 employee Valmont Industries is a global leader in the design and manufacturing of highly engineered products and services that support global infrastructure development and agricultural productivity. Its irrigation equipment and services for large-scale agriculture improve farm productivity while conserving fresh-water resources. As of 2021, the company operates in 100 countries worldwide, and has 85 manufacturing facilities across 22 countries. In 2020, the company reported revenues of $2.9 billion and adjusted EBIT of $269 million

THE TECHQUISITION PATH TOWARDS A LOW-RISK, HIGH-REWARD ACQUISITION

Valmont’s techquisition of Prospera Technology is the result of a two-year journey that started with a strategic partnership to develop transformative AgTech solutions.

In 2019, the two companies started working on a project to integrate AI technology with centre pivot irrigation, to develop real-time crop analysis and anomaly detection solutions.

At the time, the goal was to have this new solution used on one million acres by the 2020 growing season. Prospera recently announced that this target was actually surpassed by 4x, with five million acres monitored in 2020and twice as many growers using the service as compared to 2019.

Furthermore, Valmont expects grower adoption to double in 2021, with greater acceleration in the near-term.

“Our strategic partnership has demonstrated the unique combined value of Prospera’s capabilities and Valmont’s agricultural expertise and market leadership (…). This combination is the fastest way to scale impactful ag-tech solutions.”

Daniel Koppel, Co-founder and CEO of Prospera

This is not a rushed acquisition to try to pre-empt competition, or an attempt to integrate a technological solution without a specific plan – it is both a well-considered acquisition in the grand scheme of Valmont’s strategic roadmap, as well as the result of extensive due diligence achieved through prior operational partnership.

The decision to structure the business combination as an acquisition rather than as an investment was also seemingly a well deliberated one.

According to Danie Koppel, Prospera’s CEO, the company’s major roadblock was its go-to-market strategy, as a result of the company’s focus on product development and R&D to the detriment of a strong sales and marketing department (“we are 90 people and most of them are scientists”).

As such, Koppel decided the transaction with Valmont was the best way to focus on the company’s core competency – its technological expertise – and allow an established industry player such as Valmont define the commercialisation strategy, instead of having to develop a D2C model and pursue multiple partnerships.

We see great potential for this to be a transformative deal, considering the potential synergies and the relatively low level of risk involved.

A successful integration of Prospera could fully leverage the power of Valmont’s entire value chain and set a new standard for efficiency and sustainability in the agricultural industry.

STRONG VALUE CREATION FROM TECHQUISITION

The market reacted favourably to the announcements, given the potentially transformative synergies associated with both transactions and the low-risk, high-reward nature of the transaction.

By the end of the week, Valmont’s share price increased by approximately 4.4% compared to an increase of only 0.6% in the NASDAQ in relation to the announcement date’s price, implying an addition of a net $202 million to Valmont’s market capitalisation (helping the deal to pay for itself).

CLEAR TRANSFORMATIONAL OPPORTUNITY

Valmont’s techquisition of Prospera is expected to create the largest global, vertically integrated artificial intelligence company in agriculture.

For Valmont and its stakeholders, the benefits of the transaction are clear – it represents an opportunity to increase its sales through a differentiated product offering (reflected in the company’s expected 7-12% revenue increase over the next 3-5 years(1)) while also benefitting the entire agricultural ecosystem through the development of solutions that make irrigation a more efficient and sustainable process.

The techquisition also clearly aligns with Valmont’s technology-enabled growth strategy centred on the development of software products and the integration of Internet of Things (IoT) technology in its solutions.

“Over the past two years we have delivered a widely adopted, differentiated grower offering and significantly accelerated the deployment of AI technologies on irrigated acres, positioning us well for strong, highly-accretive growth of technology sales over the next several years.”

- Daniel Koppel, Co-founder and CEO of Prospera

According to Valmont, there are three strategic pillars that highlight the transformative potential of this business combination:

1. Unique, disruptive and differentiated value proposition: This combination should create a company that is immediately providing a highly differentiated in-season solution – using the irrigation pivot as a digital data hub will provide advanced agronomy and unprecedented field visibility, enabling the grower to react and solve any problems in real-time.

The techquisition will likely help create the first commercially available subscription model of its kind, which will help growers lower costs, increase yields, use less land and save time

2. Catalyst for growth: The transaction strengthens and expands Valmont’s total addressable market by pursuing opportunities beyond traditional, pivot-based irrigated acres.

The deal could also have a positive effect on the entire value chain, by accelerating technological adoption with growers, while also providing a less-cyclical sales contribution through recurring revenue from a potential subscription-based data analytics and insights service

3. Entrepreneurial spirit and key talent additions: The techquisition strengthens Valmont’s headcount with a team of ca 100 people with expertise across technology, data science and agronomy, all of whom will be retained following transaction closing. Prospera’s R&D centre located in Tel Aviv – an international ML and CV centre – will also allow the company to continuously expand its talent pool and maintain its innovation capabilities

Given all of the above, it becomes clear why Valmont decided to acquire Prospera, especially considering the increasingly competitive and acquisitive agri-food space in North America. Companies such as Farmers Business Network and Soilworks are expanding their reach and offering in 2021 through technology acquisitions. There have been other competitive developments such as the launch of Telus Agriculture, a new division of the Canadian telecom leader created to provide connected tech solutions to the agricultural industry, formed through the combination of seven acquisitions made in 2020, with more expected in 2021.

THE QUOTE

“Today’s acquisition is a testament to our commitment to make the farm more efficient and increase productivity while dramatically improving sustainability. Building on the successful partnership with Prospera, we are accelerating our commitment to provide services that enhance the lives of our customers and the communities in which they operate, as well as finding new ways to achieve higher crop yields using less.”

- Stephen Kaniewski, President and CEO of Valmont

Valmont’s acquisition of Prospera is an example of how a non-tech traditional incumbent is actively engaging in the journey of transforming itself to deliver greater value to its shareholders and customers by properly positioning itself for the future.

The essence of such a transformation unfolding is embedded in a strategy execution methodology we have trademarked and call Techquisition, which my firm, Aquaa Partners, has designed and delivers to its clients every day as an experienced and trusted partner.

Source(s): Aquaa Partners, company websites, Pitchbook, AFN, AgWeb, Business Wire, LinkedIn

Note(s): (1) May 2021 Investor Day presentation

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