September 24, 2020

By Lynda Kiernan, Global AgInvesting Media

Bridgeway National, a Washington D.C.-based investor, has acquired Canadian canola streaming company Input Capital for approximately $97.5 million, or $1.75 per share. 

GAI News first reported on Input Capital in 2013. At the time the company had ten canola streaming contracts, and had just taken delivery of canola from its first streaming contract signed on January 15 of that year with a farmer in central Saskatchewan. 

Input Capital has taken the royalty streaming business model pioneered in the metals markets and applied it to agriculture. The company provides flexible financing for canola farmers to meet working capital, mortgage finance, and canola marketing challenges in exchange for the right to purchase an agreed-upon amount of canola at a fixed price.

The company provides farmers with professional agronomy services, and if the harvest exceeds certain parameters, the company is credited with additional canola. The additional credited canola helps Input hedge against lower commodity prices as a result of a larger harvest.

Under this business model, the company had invested $123.1 million and had achieved the benchmark of having one hundred active canola streaming contracts by 2016. By the end of 2017 this number reached 301, and by the end of 2018, 388.

By 2019, however, the company was considering its options – exploring the possibility of a sale, merger, JV, going private, or even expansion into the cannabis space, after the Board announced a “comprehensive review of strategic alternatives to enhance shareholder value.”

“Last year, our Board of Directors ran an exhaustive strategic review process, to seek out a partner with a source of scalable capital to grow our mortgage stream business,” said Doug Emsley, chairman & CEO, Input Capital.

“Shareholders will know that for the last 14 months, we have continued to search for a capital partner while focussing on growing book value per share,” Emsley continued. “We are pleased to have met the team from Bridgeway and put together this proposed transaction that provides immediate liquidity and certainty of value that we believe to be in the best interest of all shareholders.”

The Board of Directors has unanimously determined that the terms of the transaction, which call for each Input shareholder to receive cash consideration of $1.75 for each share held, is in the best interests of both Input and its shareholders.

This all-cash consideration represents an approximate 103 percent premium to the close price of Input on August 12, 2020, and an approximate 149 percent premium to the VWAP of the Input shares over the last full year of trading.

Canola is Canada’s most valuable crop. A study released in 2017 and cited by the Canola Council of Canada found that the crop contributes $26.7 billion to the overall Canadian economy, accounts for $11.2 billion in wages, and generates 250,000 jobs. 

Potential for the crop seems to be only increasing as it is finding its place in the human plant-based protein market.

As the global population continues to grow, and consumers continue to become more health conscious and engaged with their food chains, global protein consumption is expected to climb at a compounded annual growth rate (CAGR) of 1.7 percent, reaching 943 million tons by 2054, according to Lux Research.

Over this same time period, alternative protein sources are forecast to command up to a third of the protein market as they fill the void created by slowing growth in meat and seafood production, and demand shifts within the consumer market.

Earlier this month, Royal DSM of the Netherlands and Avril Group, France’s fourth largest agro-industrial group, partnered to capitalize upon this opportunity by launching Olatein, a new joint venture to produce canola proteins for the global plant-based market. 

Earlier this year it appeared as if diplomatic and trade tensions between Beijing and Ottawa spelled trouble for Canada’s 43,000 canola growers. However, despite these challenging market conditions, prices for Canadian canola have soared to its highest point in two years as exporters are finding alternative points of access into the Chinese market. 

Since March 2019 Chinese authorities have blocked canola shipments from two major Canadian traders, after Canada detained an executive from Huawei Technologies based on a 2018 U.S. warrant.

However, while direct canola purchases from Canadian traders have been affected – Chinese buyers are still buying canola oil from traders in Europe and the UAE who have significantly increased their canola purchases from Canada.

Lynda Kiernan is editor with GAI Media, and is managing editor and daily contributor for Global AgInvesting’s AgInvesting Weekly News and  Agtech Intel News, and HighQuest Group’s Oilseed & Grain News. She is also a contributor to the GAI Gazette. She can be reached at lkiernan@globalaginvesting.com.