A powerful signal
December 21, 2010
by Josh Sosland
For the president of Gavilon Grain L.L.C., the acquisition of DeBruce Companies, Inc., represents far more than simply a dramatic expansion of the company’s grain industry assets. The transaction is rich with symbolism.
“Bringing these two companies together is a powerful demonstration to the industry,” said Greg Heckman, president and chief executive officer of Gavilon. “The move is a redoubling of our commitment to domestic and export customers.”
Heckman offered his thoughts about the pending acquisition to Milling & Baking News, sister publication of World Grain, Oct. 19, a few hours after the transaction was announced. Paul DeBruce, CEO of DeBruce Grain, and Larry Kittoe, president and chief operating officer, also participated in the interview at DeBruce’s Kansas City, Missouri, U.S. headquarters.
Under a definitive agreement, Omaha, Nebraska, U.S.-based Gavilon will acquire DeBruce’s grain handling facilities, fertilizer distribution network, feed mills and soybean crushing plant. DeBruce will operate as a wholly owned subsidiary of Gavilon with DeBruce and Kittoe retaining their current positions.
While terms of the transaction were not disclosed, DeBruce said Gavilon ownership is part of the consideration.
“When this transaction is completed, we will hold a fair amount of stock in Gavilon,” he said.
As part of the agreement, DeBruce will serve on the Gavilon board of directors, and both he and Kittoe will be members of several Gavilon management committees.
Once the transaction is completed (a November closing is anticipated), Gavilon will be the third largest grain company in the United States, according to data from the 2010 Grain & Milling Annual,
published by Sosland Publishing Co.
Gavilon will have more than 260 million bushels of combined grain storage capacity and will be smaller only than Archer Daniels Midland Co. (542 million bushels) and Cargill (344.2 million bushels). Gavilon will be by far the largest independent grain company in the United States — without significant grain processing assets.
Heckman described the Gavilon and DeBruce businesses as “highly complementary.”
“There is almost no overlap between the two networks,” he said. “The combination will allow us to expand service to customers on both ends of the chain. On the other hand, DeBruce is focused more on truck business than Gavilon and extends that reach around origination.”
DeBruce explained that while Gavilon’s trading operations are housed at the company’s Omaha headquarters, DeBruce has traders at its outlying locations.
“We were struck by how aligned we were philosophically, committed to building long-term relationships with customers,” Heckman said. “We are in the commodities business, and commodities will always be a people business.
“We both evolved into a model in which we chose not to compete with customers, at both ends of the food chain. Macrowise, what we see globally is a need for agricultural commodities, getting what’s needed where it is going is an expanding business. We believe we can do it better together than alone.”
Commonalities aside, exactly how these two models will be married over the long term has yet to be determined. DeBruce offered an outline of what will happen in the month ahead, noting that no DeBruce offices will be closed.
The commitment to building their respective businesses has been demonstrated in steps each company has taken during the past several months. DeBruce has embarked on a number of expansion projects at various locations, and Gavilon has announced acquisitions both domestically and overseas.
“Actions speak louder than words,” DeBruce said. “We believe in the grain business. We have additional projects we plan to announce over the next 30 to 60 days.”
Heckman said the DeBruce acquisition should not be viewed as strictly a domestic acquisition per se and instead should be seen as an important part in the company’s worldwide expansion.
“North America is a sizable, important market globally,” he said. “When there is a wheat problem, who is ready to step in? The United States has the storage infrastructure, production capabilities, lowcost transportation infrastructure, the rule of law, effective markets, banking and finance resources, contract integrity. The United States will remain the key residual supplier of world grain.
“It is important, but it is part of a global platform. We will build globally as well. We will focus around grain origination locations such as Perth (Australia). We’ve opened an ocean freight office in Geneva (Switzerland). There is more to come on that.”
Still, Heckman said benefits from the DeBruce transaction are anything but limited to exports.
“We are focused on helping grain customers manage price risks, logistical risk,” he said. “Again, we don’t compete with customers. That has resonated in the marketplace. And there is a benefit of our having been part of ConAgra. We understand the challenges of margin management at a processing company. That we’ve walked a mile in their shoes helps us relate to them.”
While all the executives emphasized the long-term focus of the respective and combined companies, Gavilon’s non-management owners are private equity firms (Ospraie Special Opportunities Fund, General Atlantic and Soros Fund Management), raising questions about what will become of the grain business in the years ahead.
Heckman was non-committal when asked whether an initial public offering may be in Gavilon’s future.
“We will look at all alternatives to source capital for growth,” he said. “But they have and continue to demonstrate a long-term focus.”Josh Sosland is editor of Milling & Baking News, World Grain’s sister publication. He can be reached at email@example.com.