Syndication offers new opportunities

Syndication offers new opportunities

Agribusiness
ALLIANCES FORMED: High machinery costs could be mitigated somewhat by forming a syndication.

ALLIANCES FORMED: High machinery costs could be mitigated somewhat by forming a syndication.

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Syndication is not new or particularly innovative, but there has not historically been a large take up of syndication in agriculture, for various reasons. Ma...

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Syndication is not new or particularly innovative, but there has not historically been a large take up of syndication in agriculture, for various reasons.

Maybe it is time to reverse this trend.

Lots of things can be syndicated - the two I have the most experience with are machinery and land.

Farmers can do this slowly or take a large leap, into areas such as collaborative farming, where labour and resources are truly shared to maximise efficiency.

There are some high profile collaborations in SA.

Land is owned by the original entity and then leased to the new entity.

The new entity is operated by farming families but is usually run like a corporate enterprise.

There are variations on the collaborative model, as one size may not fit all.

The main hurdle to overcome in any syndication proposal is mindset.

Machinery syndication is probably the easiest way for someone to start the syndication journey.

Large-scale machinery purchases can be easily syndicated to maximise efficiency.

The land syndication situations I have been involved with in the past consisted of setting up an entirely new entity and each partner financing their own deposit from existing resources.

The new entity then borrows from an independent bank for the purchase.

This guarantees the assets of the new partnership are not linked back to existing assets of the partners.

It is highly unlikely all partners will have the same level of assets and equity, and the idea is to isolate those assets from any issues the new borrowing entity may have, as much as possible.

The main hurdle to overcome in any syndication proposal is mindset.

Personalities can be a stumbling block in any syndication exercise.

All parties have to be willing to enter into this with a collective mindset - it cannot be about the individual farming business, or it will never work.

Personalities can be a stumbling block in any syndication exercise.

It is one thing to agree on issues prior to entering into the arrangement, but people can revert pretty quickly to old behaviours once the pressure is on.

It is much easier to have clear agreements in place before beginning.

This is particularly the case if one party to the syndication is going to have day-to-day management of the enterprise.

These clear agreements may include predetermined spending limits and similar topics.

Depending on the model chosen, the syndicate may choose to have an advisory board with some independent members.

This can give a level of impartiality with decision making. While not necessary, it is certainly an option, particularly for the larger operations.

Rules about dispute resolution are a must, as is a very clear entry and exit strategy.

Syndication is not for everyone, and that is fine.

Those taking part should ensure they have written, legal agreements, and sound, professional financial and legal advice.

Rules about dispute resolution are a must, as is a very clear entry and exit strategy for existing and new syndicate members.

Major benefits of syndication are sharing resources more efficiently and maximising the use of capital within the businesses.

With the cost of new machinery and land so high, syndication may well be an option for those agribusiness operators that are willing to give it a go.

Where does someone start?

Perhaps a discussion with a neighbour across the boundary fence is one option.

Details: bagshawagriconsulting.com.au

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