Fledgling Origin’s plucky buy all in the timing

ONLY time will tell how shrewd a move the €80 million purchase of Masstock was by Origin Enterprises in mid-January.

The new business provides crop and soil advice to crop producers in Britain and their client base accounts for about 25% of the country’s arable land.

Origin is 73% owned by IAWS and launched last year on the secondary markets, including London’s AIM and Dublin’s IEX.

Its shares have done well and are about 30% up from their flotation price, despite the well-documented share price turmoil internationally, and the next 10 years could be hugely significant for the fledgling group.

Masstock will cost the group about £60 million (€80m) and comes at a time when farm output is set to take off as demand grows for meat and dairy food products.

The growing world population is making its own demands, compounded by the fact that people are living longer.

It could add up to one of the most protracted rises in food prices in a long time and analysts are warning the era of cheap food is over.

From an Origin perspective, the timing of the deal could hardly have been better.

And it looks as if the deal had been in the group’s sights before it made its stock market entry last year.

Masstock has a solid reputation. Its origins go back to the McGuckian brothers of the North who saw an opportunity to sell the idea of best farm practices to countries where farming skills were still underdeveloped.

Its set-up is geared to providing crop-growing farmers with soil analysis, fertiliser use and disease control to ensure they get the best crop yields possible.

While the business represents a new move for the group, Origin’s chief executive, Tom O’Mahony, believes the deal is a “transformational one”, bringing with it massive opportunities and synergies.

Origin is a leading supplier of fertilisers in Britain while its animal feed division in Ireland, through subsidiary R&H Hall, could also get a boost from the spin-off business that Britain and Poland should deliver.

It is reckoned the 500 jobs in Masstock could double in five years.

Initially the synergies to be exploited will come from the fertiliser business.

In that category Origin and Masstock are already well engaged.

Origin owns Gouldings in Ireland and fertiliser operations, including PB Kent, in the North and Britain.

It blends and distributes fertilisers in the Irish and British markets.

Masstock’s fertiliser division procures and distributes an estimated 450,000 tonnes of fertiliser annually.

If Origin muscles in on the fertiliser end of the operations then the implications for the Origin fertiliser business (once the two start to streamline their services) should mean the whole should be greater than the sum of the parts.

Origin sells directly to the agribusiness and food sectors while Masstock interacts directly with the farming community, but they have sufficient ground in common to allow significant evolution of the two businesses over time.

Looking at Masstock, the potential for replicating the business model in other countries in Europe is also there to be tapped.

Looking further east from Poland, opportunities also beckon, the group believes, as populations in former Russian statelets that endured subsistence living standards start to demand a better quality of life.

Origin is optimistic it can exploit that potential to a far higher degree than the group has been able to do off its own bat.

Masstock also sells and distributes seeds, sprays and fertilisers and it had a turnover of £250.6m (€336m) for the year ending June 2007.