The deal cycle is closed with the so-called exit. Investors do not stay around forever. One day, the future envisaged has to be capitalized. Despite the importance of the exit as a key moment in the deal cycle, it is difficult to come to terms with its operational details, since many of the agricultural investment schemes have not reached the exit date (or asset managers have been tight-lipped about the performance of their assets under management). As interviews revealed, the people working on the ground, even senior managers, often have no exact knowledge of what the money managers in the background have planned for the business. The standard narrative at the beginning of the agricultural investment boom was that assetized farming ventures would be rolled over into another fund, sold to other institutional investors or agrobusiness companies (trade sales), or made available to the public through the stock listing (initial public offering: IPO). One asset manager drew a completely different picture of what was often the most practical solution, however:
“So, the standard exit is the sale to farmers. At least 98 percent of the world’s agricultural sector is still run by farmers. In other words, by family farms, with varying equity resources, but in some cases very wealthy families. This means that the situation would be fatal if you had to rely on any trade sale or IPO or any financial engineering variant at the exit. Especially, one should plan in such a way that one can sell individual farms to individual farmers – what we have always done so far. Which doesn’t mean you can’t get a bundle. But that shouldn’t be the strategy from the beginning. So, the existing cases show that big investors, who are on the move with 100, 120 million tickets for their farm clusters, in Brazil or wherever, they’ve been trying to sell those for four years because the target group for such large parcels is so small that it’s highly dangerous” (Interview, 2014).
Based on the above, his own firm opted for dairy farming systems that are scalable into different modules, which allowed his firm to slice farm sales according to the appetite of incoming investors.
In some regions, such as many parts of Africa, public selling strategies (“underdeveloped” stock markets!) and resale to farmers are both unlikely options (there are few local farmers with such deep pockets!). In such environments, trade sales may be more likely. Investors dream of capitalizing on the fact that food-importing governments, food-processing companies, commodity traders and/ or supermarkets are increasingly concerned about securing their supply chains but want to avoid the risk of entering into primary production directly, or, at least, try avoiding entering such “frontier markets” as first-mover investors.
Choosing the right moment to exit one’s investment means taking currency issues as well as demand-related site issues into account. The latter means to monitor potential buyers for the assetized venture. Currency issues matter if the fund is listed in one currency whereas the expenses as well as the asset purchase are listed in another. Most cases that I studied in detail had not yet come to an exit. A rather well-known exit, from the Canada Pension Plan Investment Board in 2017 out of US$250 million US farmland investments, occurred not only due to Board decisions, but supposedly was also driven by public pressure. What is the influence of public pressure? More on this here.
(Ouma 2020: 127-130)