Fertilizer M&A deals spring to life
After years of suppressed deal flow and merger & acquisition (M&A) activity, fertilizer companies are now seeing a flurry of transactions. Vastly improved cash flow and a more positive long-term outlook for the industry underpins this. In this Insight, we analyse the recent and upcoming deals.
Fertilizer earnings soared in 2022
Fertilizer prices reached multi-decade highs in 2022. High natural gas prices, Russia’s invasion of Ukraine, sanctions on Belarus and strong agricultural commodity prices all contributed to soaring returns for fertilizer producers. Publicly traded companies have maintained a disciplined approach to managing improved cash and capital flows, with share buybacks taking place through the year. Annual reporting of major fertilizer companies showed strong free cash flow at the end of 2022, and this may be utilised over 2023 to fund merger and acquisition activity.
CF expands its presence in Louisiana with Waggaman
The headline M&A deal of 2023 so far has been?CF Industries’ agreement to buy Incitec Pivot’s ammonia production facility and related assets at Waggaman, Louisiana, for $1.675 billion.
On the announcement of the Incitec Pivot review of the Waggaman plant in November 2022, we?published an Insight, which suggested the valuation of the asset, and competition for it, could be high. Our (admittedly unsophisticated) EBITDA valuation model suggested a Waggaman deal could reach $1.5 billion and that CF was a likely buyer.
We have updated this model for our most recent ammonia price and cost forecasts, both of which have been revised lower on the faster-than-expected correction in gas and ammonia prices. Using these new inputs, the CF-Waggaman deal suggests a 13X multiple of cycle average EBITDA – well above industry standards.
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