Agribusiness Investments
Agribusiness Partners International, L.P. (API or Fund) was a $100 million limited partnership formed in 1995 to invest in agribusiness and food processing companies in the countries of the former Soviet Union. The Fund had a guaranty from the Overseas Private Investment Corporation, an agency of the United States government and was fully invested in companies located in Russia, Kazakhstan, Ukraine, Moldova and Georgia.
Overview
The Chairman Emeritus of the Burlington Capital Group, Mike Yanney, was
invited by Soviet officials to develop several agribusiness-related projects
in the Soviet Union during the late 1970’s and early 1980’s. The success
of these projects cultivated key relationships with important people in
the Soviet Union that still exist today. With the fall of communism, Mr.
Yanney recognized the historic opportunity to develop an investment fund
for the former Soviet Union. Mike Yanney and Bob Peyton, an executive with
over 27 years of agribusiness experience, developed the fund idea and secured
an investment guarantee from the Overseas Private Investment Corporation
(OPIC), an agency of the United States government. The unique fund structure
guaranteed investors that they would get back at least their total investment
capital, even if either the transition in the former Soviet countries was
unsuccessful or the fund performed poorly. This guarantee was instrumental
in attracting investors to Russia and the Commonwealth of Independent States
(CIS) in these early days of the economic and democratic transition. In
December of 1995, Agribusiness Partners International (API), a $100 million
private investment fund with a guarantee from OPIC was closed. A final fund
closing was held in February 1997. Agribusiness Management Company, the
fund manager for API, established an investment office in Moscow, Russia
in 1995 which not only increased the overall presence in the region, but
insured a hands-on approach to the management of the daily operations. Over
the years the office was staffed by native Russian speakers from within
the region. Members of the Omaha investment team traveled extensively to
the former Soviet Union and worked closely with the “in region” team
with each member bringing a successful investment record and strong financial,
strategic and operational skills. The team developed strong personal contacts
and extensive regional experience in sourcing, structuring, managing and
exiting investments in the former Soviet Union. Agribusiness Partners International
(API) invested in eight food and agribusiness sector companies with operations
in Russia, Kazakhstan, Georgia, Moldova and Ukraine. The investments included
classic agribusinesses such as poultry production; however, some investments,
although related to agribusiness, reflected a more diversified approach
such as glass container manufacturing and packaging production.
Portfolio Companies Overview
Chicken Kingdom
In 1997, API made its initial investment in a broiler production company – initially
called Golden Rooster which later evolved into the name Chicken Kingdom, the
brand under which all products were marketed. The investment rationale for
Chicken Kingdom was a severe shortage of domestic production of poultry as
broiler production had declined 75% from the peak during Soviet times. The
fund also believed there were significant inefficiencies in the broiler production
cycle in the Region and yet the region possessed the potential for low cost
production with its inexpensive grain costs and abundant labor. Chicken Kingdom
was started in the Lipetsk Region of Russia and then expanded into the Veronesh
and Bryansk Regions. The initial investment updated the Lipetsk Processing
plant, several state owned broiler farms in the region and completely updating
all houses engaged in broiler production. The company also invested in its
own broiler breeder farms and hatcheries to enable it to be self sufficient
on broiler chicks. In 2004, the company completed the construction of a state
of the art processing plant in the Bryansk Region located approximately four
hours by car west of Moscow.
Initially, the company employed a team of foreign expatriates to get the company started and to transfer the knowledge of broiler production and best business practices from the west into Russia. By 1998, the entire management staff was virtually all Russian citizens with only the CEO a non-Russian expatriate. In 2004, the transition was made complete when one of API’s investment team became the CEO of the company making the company 100% Russian managed.
Chicken Kingdom was sold by the fund to a large Russian meat and poultry company in the summer of 2007. The company had grown from zero in revenues to $150 million annual revenues upon exit. The company employed approximately 3000 employees at the time of exit and had grown to be one of the top three broiler companies in Russia. At its peak production prior to exit, the company was producing approximate 1.2 million birds/week utilizing in excess of 300 broiler houses at 14 different locations.
Chicken Kingdom was one of API’s most successful investments as the initial capital of $22.5 million returned $130 million to the fund over the life of the project.
RASKO
In 1998 API invested $15.0 million in the Rasko glass container company
located in Vladimir Region in the small village of Anopino, Russia. RASKO
was an existing operating entity that had been privatized by management of
the company headed by its CEO, Vitaly Mironov. RASKO was marginally profitable
at that point and was producing 90 million bottles /year with existing Russian
rotary production technology. With the API investment, RASKO proceeded to
build a new factory in Anopino as well as upgrade the existing factory. In
2000, the company expanded to Veronesh and acquired a television tube manufacturer
in that city and again proceeded with the upgrade to modern glass container
production. RASKO grew to become one of the leaders in glass container production
by 2007 when the fund exited this business. At that time, the company was
producing 850 million bottles /year with revenues of $73 million on an annual
basis.
Foodmaster International
One of the first businesses that API invested in was the Foodmaster Dairy
Company. Foodmaster purchased outdated dairy processing assets in Kazakstan,
Ukraine and Moldova. The company renovated those plants with modern equipment
and produced state-of -the-art dairy products for the markets that it served
in those former Soviet countries. The big success story for Foodmaster was
its ability to establish one of the leading brand names for dairy products
in Kazakstan with #1 market share in several of the markets it served. The
initial investment was made in March 1997 with a total investment commitment
of $12.3 million. The company grew from zero revenues to sales of $45 million
when sold in 2004 to the French cheese maker Lactalis. Enterprise value of
this business was $38 million excluding the Foodmaster’s Ice Cream business
which was kept until it could reach significant size to attract strategic
interest. Foodmanster is another example of a business that was started from
scratch with old existing Soviet assets and was built into a company with
leading market share in the markets that it served.
Polygraf
In 1997, API invested in one of the early leaders in the packaging and
labeling industry, Polygraformlenie located in St Petersburg, Russia.
Polygraf was one of the early suppliers of packaging materials to the multinational
consumer products companies serving Russia. Leading companies such as
Mars,
Coca-Cola, Pepsi, Whiskas pet foods, and Red October Chocolates are just
a few examples of their clients. Polygraf was an established business
and was in the early stages of expansion with new offset printing technology
and flexographic printing when API acquired the shares. Polygraf developed
into the largest packaging and flexographic materials company in Russia
with 2007 revenues approximately $75 million. API reached an agreement
to
sell its shares in Polygraf to management in 2004 with final settlement
in 2007.
Saint Springs Water Company
In 1996 API invested $2.2 million in the Saint Springs Water Company, a
producer of premium brand still and sparkling water sold in plastic containers
and office coolers. Saint Springs was the first modern or western style
producer of bottled water to enter the Russian market. The company grew
quickly to reach approximately 20% of the total Russian bottled water market
and was the leader in market share and brand identity. The company’s
annual revenues had reached $31 million when in 2002 it was sold to Nestle
of Switzerland and was the initial entry of Nestle into the Russian bottled
water market.
Acodec Cheese
Acodec Cheese, a start up investment, was a small producer of hard cheeses
and was relatively successful in the early years, but eventually ran into
significant raw material supply problems later in the investment cycle.
Acodec was sold to a Russian cheese distribution company at a slight loss
in 2006.
KLP Soft Drinks
KLP soft drinks was a start up beverage production company utilizing a
franchise of the Irn Bru brand from AG Barr in Scotland. KLP was financially
devastated by the financial crisis of 1998 because of the devaluation of
the Ruble. The company discontinued its operations in 1999.
Bagrationi Sparking Wine
Bagrationi Sparkling Wine was an investment in a Soviet style sparkling
wine production company. The investment rationale was this was a low cost
entry into the business with a large plant and an abundant inventory of
wine materials. The production plant was renovated with a new bottling line
and upgraded production facilities. However, the primary business was export
sales to Russia which were ultimately prevented due to political differences
between Russia and Georgia. Bragationi was sold to a Georgian investor in
2006.
API Performance
In 1998, the region experienced a severe economic crisis and currency devaluation.
For example, the Russian ruble devalued by 4 to 1 or lost 75% of its value.
Other economies in the region followed suit. This made it very difficult
on businesses that relied on ruble sales in Russia but imported products
or raw materials from abroad. In fact, many businesses and investment funds
were not able to survive the crisis. The API fund weathered this difficult
economic period and prospered because we had decided early on to not allow
our portfolio companies to incur hard currency debt. This kept our investments
immune from the initial impact of devaluation. The Fund also invested primarily
in businesses that were Ruble based (local currency) which prevented significant
cost/revenue imbalance post devaluation.
The investment team’s operational and regional experience translated into substantial financial and market growth. The current political stability, combined with steady economic progress, is expected to accelerate portfolio companies growth and enhance exit opportunities.