Measuring the impact of Growth Farms acquisitions

Calculating the impact of an acquisition is crucially important before going ahead with a purchase, and increasingly, ESG considerations form a major part of this due diligence.

Acquiring a property involves more than just paying an upfront cost. When considering an agriculture asset such as a farm, consideration needs to be given to the ongoing management costs, associated resources required, and how long it will take for that property to reach its productive potential. This is why measuring the impact of an acquisition before purchasing it is so important.

There is a range of checks Growth Farms undertakes before it buys an asset. They include examining the natural assets of the business – soil types, topography, long-term rainfall trends – as well as ensuring the goals of the investor are met.

“We always ask what's the sustainable productive capacity of the land, and what's the best use of it that will provide the best returns or deliver on the investment goals of the client,” Growth Farms CEO Martin Newnham says. “We may reject certain farms if they’re not right for the client, or we may have clients who have conditions attached to a purchase, which could be around rainfall, the region, or the type of commodity.”

Importance of evidence-based decisions

Growth Farms undertakes what it calls technical due diligence. As it tends to invest in properties in areas of high rainfall, it uses simulation models to understand the ecological economic outcomes of certain farms. “Our due diligence is evidence-based,” says Newnham. “Which means our decisions are not based on an ‘I reckon or ‘I hope’ or ‘I might’, but on proven data.”

Evaluating risk factors is also crucial, especially around the reliability of rainfall. “We may look at the type of water allocation available for particular properties and the historic reliability and cost of that water,” Newnham says. “We'll also look at the region’s access to markets and services. Is there a good contractor base, as well as good staff? Also is it a good place to live? If you need to attract management, there are many factors in the discovery process that must be considered.”

Factoring in ESG considerations

ESG considerations are also incredibly important during this due diligence process. Growth Farms believes all acquisitions involve looking after the land and leaving it in a better condition than when it was acquired.

“While a highly productive farm doesn’t require you to tick every environmental box, overgrazing or trying to get short-term returns is a sure way to compromise the environmental and natural assets of a farm,” Newnham says. “You’re dealing with so many factors – the farm, crops, livestock, people – they all have their own roles, and you have to work within the parameters that they provide.”

Ultimately any purchase is the client’s decision. “We present the risk factors we’ve identified with a recommendation, and the client makes the ultimate call from there,” Newnham says. “There is a range of factors that goes into recommending a purchase – or not. But measuring the impact of an acquisition upfront allows us to make evidence-based recommendations.”