July 25, 2024

By Gerelyn Terzo, Global AgInvesting Media

Consolidation is afoot in Australia’s water entitlement market. In its second acquisition in a matter of weeks, ASX-listed Regal Partners has announced it will take a 40 percent stake in Argyle Group, which invests in a diverse portfolio of water entitlements, combining two of the country’s biggest asset managers in this segment. The minority investment includes 40 percent of Argyle Group Holdings and 40 percent of Argyle Group Holdings Trust, for a total consideration of A$12 million (US$7.8 million).

This water deal comes on the heels of Regal’s acquisition of private credit specialist Merricks Capital for a price tag of A$235 million (US$156.77 million), which was announced in June and finalized earlier this month.

Argyle, which oversees approximately A$1.4 billion (US$ 916.2 million) in funds under management (FUM), is undergoing a corporate restructuring involving the divestment of its agricultural investment management business, catapulting it to become Australia’s biggest pure-play water entitlements asset manager.

Regal expects the deal will bolster its “capabilities across the highly attractive Australian water entitlements market,” per the announcement. Upon completion, the transaction will increase Regal’s total pro forma FUM across its Real & Natural Assets strategies to A$2.1 billion (US$1.3 billion) and across the RPL group to roughly A$16.4 billion (US$10.7 billion) on a 100 percent FUM basis.

As the driest inhabited continent on the planet, Australia’s agriculture production is threatened not by a scarcity of fertile land but instead the availability of irrigation water that is critical to the production of food and fiber. The country’s irrigation water is tightly regulated, and water entitlements give the holder legal share of the water to consume. Australia’s water has been decoupled from the land and has its own set of property rights attached, allowing for the trading of water rights in the open market permanently or temporarily.

Domiciled in Brisbane, Australia, Argyle has been investing in water and agriculture on behalf of domestic and offshore institutional investors, private wealth advisory groups and direct wholesale investors for the better part of two decades. The firm has gained a reputation as a pioneer in Australia’s water entitlements market, owing to its launch of the country’s maiden investable water fund in 2012. Since inception, the Argyle Water Fund has delivered an attractive 11.13 percent IRR.

According to the terms of the deal, Regal has agreed to acquire 40 percent of the issued share capital of Argyle Holdings and 40 percent of the issued units of Argyle Group Holdings Trust. Regal is purchasing its position in Argyle Holdings and Argyle Trust from exiting shareholders in conjunction with the divestment of the target company’s agriculture division. Regal will finance the acquisition using cash from its existing sources and forecasts that it will be modestly accretive to its EPS in calendar year 2024. Once the deal is complete, Argyle’s key management team will retain their 60 percent ownership stake.

Regal Partners CEO Brendan O’Connor stated, “We are excited about the benefits that Australian water entitlements can deliver to diversified portfolios and the broader outlook for the water market as a whole.”

Argyle Group CIO Kim Morison said, “We are pleased to partner with Regal, a leading provider of alternative investment strategies, in Argyle’s next stage of growth as a pure-play water investment manager.”

The finalization of the deal, which hinges on Argyle’s ag business divestment and the completion of its corporate restructuring, is expected by the end of this month.

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