A new, ambitious player is making a big entrance into Australia’s dairy sector to capitalize upon China’s demand for Australian infant formula.

 

Aerem, which is backed by Deutsche Bank vice-chairman, Steven Skala, and private equity veteran, Len Harlan of Castle Harlan, has hired JP Morgan to help raise $750 million in a pre-initial public offering round of fundraising from institutional investors and high net worth individuals, to finance the purchase of 66 dairy farms in south-west Victoria, and the construction of a $250 million infant formula production plant.

 

It is reported that Aerem already has binding purchase agreements on the farms in question through a deal put together by operating manager, Tim Roach and Tasmanian corporate advisor, Andrew Scobie. The collective farms, which are located in the heart of Murray Goulburn’s operating territory, have a combined production capacity of 350 million liters of milk per year, which will feed the production facility for the manufacturing of infant formula to be sold on the Chinese market.

 

China’s recent announcement that it will be eliminating its ‘one-child policy’ has added a new long-term growth driver for the Chinese infant formula market, which is currently estimated to be worth $20 billion per year, and which increasingly depends on foreign, imported products which are seen as safer than domestically produced formula.

 

This announcement of the fundraising by Aerem, comes on the heels of Tasmania’s TasFoods, which recently sought to raise $250 million to acquire dairy company, Van Diemen’s Land Company (VDL) last week – receiving backing from both Australian and Asian public equity investors and successfully raising the capital through OnCard International Ltd.

 

Although the acquisition of VDL, which is Australia’s largest single-volume dairy asset, was significant, the farms that Aerem is planning to acquire will have the capacity to produce three and a half times the amount of milk per year, ensuring a stable, massive supply of milk.

 

Aerem plans to close this round of fundraising by the end of the year, and if the raising, farm acquisitions, and production plant construction are successful, it plans to conduct an initial public offering in 2017.