Origin Enterprises, which owns the Goulding and Origin Fertiliser brands, is to buy the fertiliser activities and certain assets of Bunn Fertiliser Ltd from Koch Fertilisers. The deal, which is on a debt-free and cash-free basis, sees Origin buy the business for a consideration of £14.2m (€16.4m).

The total enterprise value of the transaction, inclusive of estimated average working capital, is expected to be £18.2m.

Bunn, which was established almost 200 years ago, imports, blends and distributes fertiliser blends for the arable, grassland and horticultural sectors in the UK.

Bunn had sales of £127.7m (€147m) for the year ending 31 December 2016. Origin said in its statement that it has “maintainable profits (EBIT) of circa £2.8m (€3.2m) ”, implying margins of 2.2%.

It is estimated that Bunn sold approximately 600,000t of fertilisers to merchants, co-ops and retail customers last year. This would imply that Origin paid 6.5 times earnings for this business.

Subject to clearance

Completion of the transaction is subject to clearance from the UK competition authority. The acquisition is being funded from existing bank facilities and is expected to be earnings-enhancing in the first full year of ownership.

Tom O’Mahony, CEO of Origin, which has revenues of €1.5bn said: “Bunn is an excellent business with a dedicated commitment to addressing the crop yield, quality and soil fertility requirements of primary producers.

“Bunn advances the group’s capacity to manage supply chain complexity as well as providing complementary customer and product channel access.”

In 2011, US fertiliser group Koch purchased Bunn Fertiliser in a deal that was understood to be around £70m. At that time, it employed about 150 people in its fertiliser business, and comprised of seven terminals throughout the United Kingdom.

Since then, a major restructuring has taken place after losses in the business where a number of sites had consolidated.

Origin is due to announce interim results on Thursday 9 March.

This deal will make Origin, with existing activities of Origin Fertilisers and Agrii in the UK, and Goulding Fertilisers in Ireland, the largest fertiliser business in the UK and Ireland with around 2.3m tonnes.

At a 6.5 times earnings multiple, the deal seems good value. At first glance it would appear to be a strong strategic fit for Origin. Given that it is a low-margin business, this acquisition will enable the group to optimise operation and logistical efficiencies and synergies over time, while enhancing buying capabilities.

Koch Fertilizer, which markets more than 13m tonnes worldwide, was traditionally a commodity-based fertiliser producer and trader. At the time, their move into the UK was seen as surprising as it placed them much closer to the farmer.

While Bunn had been a profitable specialist provider, following the Koch buyout it lost market share, had overcapacity and made losses in its operations. The UK fertiliser market has shrunk from its peak of almost 7m tonnes and is extremely competitive with a large number of operators with significant overcapacity competing for a slice of a now much smaller 3.5m tonne market.