Case Study: Brazil Iowa Farms Case Study
Staff Journalist
History
Brazil Iowa Farms, LLC is an integrated agribusiness company headquarted in Royal, Iowa that owned and operated 22,550 acres of producing farmland and a cotton gin in the Brazilian state of Bahia. Grupo Iowa, as the company is known as in Brazil, was created in 2002 to provide U. S. agricultural producers a venue to participate in the growing agricultural climate that exists in the current economic model in Brazil.
The first Brazilian land acquisition took place in 2004 and since then, Brazil Iowa farms has continued to expand its presence in the western Brazilian region of Bahia focusing primarily on the production and ginning of cotton, as well as the production of soybeans and corn.
Needs
The company was is its second crop year and critically needed capital to finance crop inputs. So they approached Provident Group, which is a New York based specialty investment bank and advisory firm that focuses on capital raising and M & A assignments for middle market issuers located throughout the Americas. Provident Group identified three challenges facing Brazil Iowa Farms. Firstly, they had a thinly capitalized balance sheet. Secondly, commodity prices for cotton were depressed combined with a lack of quality off-takers with good credit profiles. And finally, Provident identified the lack of a recognized strategic and technical partner. Longer term, the company also needed equity capital to scale its operations by acquiring new land so they could create a business which could be exited via a strategic sale or local public issuance.
Solution
In early 2008 Provident Group announced the completion of a U.S. million equity expansion financing deal. The capital represented commitments from two institutions for U.S. million each. As well as raising the expansion capital, the deal enabled Brazil Iowa farms to refinance their existing debt with a U.S. million 5-year debt facility structured to defer principle amortization. As well they raised U.S.million of equity from a strategic off-taker/advisor, which included a multi-year agreement that intermediated off-taking risk for both local and international off-takers for cotton.
Future
David Kruse the President of Brazil Iowa farms explains how the deal will impact on their business ” This equity investment is a seminal event for Brazil Iowa Farms, moving us from a mid sized organization largely funded by US individual farmers to one partnered with capital sources that will enable us to significantly scale the operations, expand our productive capacity and ultimately create an organization which will be able to compete with key regional players. Our objective is to become the dominant producer of cotton in Brazil’s Northeastern region and our expanded capital base, management team and strategic plan, augmented by our relationship with Cargill Cotton as a strategic partner, create the opportunity to execute on our original vision of creating a US managed, large scale producer based in Brazil. We remain optimistic on the pathway of cotton prices over the intermediate term and believe that Brazil will continue to grow in importance in this segment as a key player globally with the potential to emerge as the top producer over the next few years.”
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The Alternative Latin Investor staff is comprised of finance and journalism professionals who create articles through a process of research, data gathering, and industry interviews in order to provide unique content regarding alternative asset investment within the Latin American region.
