By Javier Preciado Patiño*
A few weeks ago, eFarmNewsAr.com participated in the conference press where Grupo Los Grobo and Victoria Capital Partners (VCP) announced the injection of US$100 million to reduce its financial exposure.
Yesterday, Thursday, May 16th we met CEO Jorge Arpi in the headquarters of Agrofina, the agrochemical company that forms part of the holding. We wanted to know more about how this equity fund is thinking on the strategy in this iconic company of Argentine farming.
First, Grupo Los Grobo is no longer a family company. Brothers Matilde and Gustavo Grobocopatel retained 24% of the stocks, while VCP with co-investors holds the majority 76 percent. These co-investors are the IFC (the financial arm of the World Bank), the University of Texas Investment Management Company and the Dutch Entrepreneur Development Bank FMO.
“As a private equity company, VCP has a precise mandate, about how invest the money, in what geographical area, in what kind of business, and also has a clear governance system: a professional executive management were owners don’t participate, an Executive Committee in behalf of the shareholders which supervise the management and a shareholders board that decides the strategic issues of the company”, Arpi explains in dialogue with eFarmNewsAr.com.
Second, VCP in the medium or long term will sell Los Grobo. Arpi, a confident man of the VCP board, managed Peñaflor, another iconic agrifood company but in the wine and beverage business, when VCP bought it to the Pulenta family in 1999.
“We are always looking for companies to which we can add value. The investors know that they will not recover the money via dividends; they know that the company must be revalued before a strategic operator enters in it”, Arpi continues.
The Peñaflor case is considered by him as a successful one. They bought the company to the Pulenta family; then they re-engineered it selling some business units and concentrating the operation in the fine wines business. In 2011 they sold the company to Bemberg family after they sold brewing and beer company Quilmes to AmBev.
“It’s clear that the private equity companies exist because strategic operators also exist”, Arpi resumes.
But, what does Grupo Los Grobo represents today?
1.- Agrochemical company Agrofina with US$140 revenues per year.
2.- Inputs selling unit, with US$100 million revenues per year.
3.- Wheat milling unit (Molino Canepa) with US$20 million revenues.
4.- Grains origination, storage, and commercialization with US$60 million revenues.
Along with the interview, Mr. Arpi stressed the importance of origination in the business plan of the company. Despite the complexity of this kind of business (mainly due to the logistic planning and prices hedge) he describes Los Grobo as an “origination company” and “a services supplier to exporters”. In fact, he conceives the company as “a partner” of the exporters.
To achieve this goal they are opening new commercial offices in the inland of the country, but they are very cautious about to invest in new storage facilities. “To maintain a logistic balance is a key issue”, Arpi says. “We can’t ‘taming the beast’ without storages facilities but, at the same time, to have a facility in each place where we are operating is too expensive. There is not economic return for investment in grain storage; therefore to lease storage plants is a possibility. In the next 4 or 5 years, we will go unhurried, but we will grow in storage capacity not necessarily buying or mounting new facilities”, Arpi explains.
And, what’s about the agrochemical business? The CEO responses that they found a company with a valuable I+D section and a company with the capability to synthesizes not only formulate the products. “It’s a difficult and competitive business, but we are going well; we are improving the profitability of Agrofina, achieving a significant cost saving”, he adds.
And in respect to Molino Canepa, Arpi remarks that it is a business unit with a high level of autonomy, that represents for Los Grobo a ‘client’ for 100K tons of wheat per year.
Hearing the CEO of Los Grobo our feeling is that the management is concentrated in to improve the financial ratios, without significant investments in hard assets. We consider that probably Agrofina or the wheat mill will be sold in the short or medium term and that the company will remain focused on the farming, inputs retail, and grain operation. The remaining question is who will buy Los Grobo, in eight or ten years.
Mr. Arpi opines that Argentina is a strategic place in the food and agribusiness global map, and there are in the world strategic operators that will be interested in to buy the company when VCP management will have re-valued it.
*Agronomist from Buenos Aires University. Co-founder of www.eFarmNewsAr. Co-founder of RIA Consultores