Verdesian Life Sciences and its offensive to conquer Latin America

The U.S. company has the region as one of its main sources of growth for its bioinputs strategy. The firm is in the process of acquiring two companies in the region, while looking for partners for local manufacturing support. Augusto Meneses, the company's vice president for this market, explains the company's strategy and the plans to increase its footprint in the region.

F. Aldunate M.

For Verdesian executives, the key of their strategy is not only at the laboratory. They are not only looking to isolate a new molecule or develop a new extract that helps in plants' growth and resistance. For the dynamic U.S. firm, seeking to become a major player in the global bioinputs market, the strategy is also to find new companies that will enable it to strengthen its product portfolio as well as its presence in different geographies. And buy them.

Through a string of acquisitions of bio companies, Verdesian has become one of the fastest growing firms on the planet in the natural agricultural inputs business. With a strong presence in fertilizer additives, biostimulants and specialty nutrition, it now has Latin America as one of its main focuses for growth. In fact, its next acquisitions could be in this region. "We are in talks to buy two Latin American companies, whose main source of revenue is the region,", dice Augusto Meneses, quien tiene el doble cargo de vicepresidente de estrategia internacional de especialidades y vicepresidente comercial para la región de América Latina, Caribe e Iberia. “En este momento, estamos construyendo los casos: reuniendo la mayor información posible de estas compañías, desde su área de R&D, hasta el detalle de sus segmentos de mercado; analizamos las diferencias y las sinergias con Verdesian, su capacidad para formular nuestros productos, es todo un mundo de cosas las que hay que ver”, dice Meneses. “Si bien no podemos confirmar nada hasta que se ponga la firma final, estamos haciendo lo mejor posible para que se concrete en los meses que vienen”.  

Company acquisitions have been key for Verdesian: the firm, based in Cary, North Carolina, has bought seven companies in its 10 years of existence, which has been one of the keys to achieving sales of nearly US$280 million annually. Meneses, in fact, has been closely involved in much of the process: the Chilean-born executive is the only one who has been with the company since its beginnings in 2012. "It has been an incredible growth in these 10 years; we started four people a decade ago and now we are more than 350 people, with a global presence," says Meneses. 

The company was founded by private equity firm Paine Schwartz Partners together with agronomist JJ Grow to create a platform specializing in plant health and nutrition. Consistent with its financial background, its business model, in addition to researching its own solutions, consisted of acquiring companies that allowed it to add innovations to its portfolio and presence in different markets. In 2021, the company carried out two major operations. On the one hand, in February, Verdesian was acquired by the investment fund AEA for an undisclosed amount. On the other hand, in April it acquired Utah-based Cytozyme, which allowed it to increase its footprint in markets such as South America and India. Now, the company, which has a large part of its production capacity concentrated in the United States, is looking for options to grow more globally, with certain focuses. "Latin America and Europe are the two regions where we should grow the most in the coming years," says Meneses in an interview. "We are also placing a lot of effort in India."

For Verdesian, company acquisitions have been key to its development. In its 10 years of life, it has acquired seven companies that have given it a global presence in the agricultural nutrition segment. The latest was Cytozyme, which was incorporated in early 2021.

-How large is Verdesian Life Sciences today? This is a firm that has recently celebrated its 10th anniversary, but has experienced strong growth. 

"We are billing around US$280 million annually. But beware, this is a revenue of US$280 million upstream: we are at the beginning of the chain and therefore it does not take into account the margins that are added as we get closer to the farmer. The economics around Verdesian products are greater when considering the distributor and the end user. We started four people in 2012 and to have reached US$280 million in 10 years is incredible. Today we have close to 350 employees globally."   

-The acquisitions of companies such as Cytozime in 2021 have been key to this growth, haven't they?

"They have been important. Now, while it is true that these revenues come from the purchase of revenue because we have bought the company, it has also been due to the development of the company itself, an organic growth through the construction of a portfolio of products and solutions that has allowed us to gain market share."

-Are you looking at new acquisitions? 

"Yes, in fact we are in conversations with two companies in Latin America whose main sources of revenue are in the region. These are two companies that have presence and high potential in international markets. In other words, they have a footprint here in the United States and an interesting spearhead in European and Asian countries. Of course, these are two companies with whom we are working in confidentiality and secrecy. Right now, we are building the case: adding as much information as possible on these companies, from their R&D area, to the detail of their market segments; we look at the differences and synergies with Verdesian, their ability to formulate our products, it's a whole world of things to look at. While there is nothing until the final signature is in place, we are doing our best to make it happen in the coming months. Maybe June or July. We also initiated a conversation under a a Non Disclosure Agreement (MDA) with a firm in Asia".

“Si bien no podemos confirmar nada hasta que se ponga la firma final, estamos haciendo lo mejor posible para que se concrete en los meses que vienen”

-The product portfolio that Verdesian has built is very broad. Which are the most important in terms of income? 

"Rather than singling out specific products, we should talk about categories: 40 percent of our income - maybe 35 to 40% - is in the fertilizer additives segment, products that make fertilizers more use efficient. Of what is left, 50% comes from biostimulant and 50% from specialty nutrition."  

-Should these percentages remain the same over time?

"No, our projection is that the importance of additives in the coming years, starting with this one, will drop to about 20%: although they will continue to grow, we believe that proportionally they will drop because the biostimulation part will grow a lot between now and 2024".

-What is the goal in that sense? If today biostimulants account for about 30% of revenues, what percentage of the business should it reach?  

"I believe biostimulation should grow to become 50% of the business, we should more than double its current amounts."  

-Verdesian's portfolio is very broad, but it does not include biopesticides or biocontrol. Why?

"In principle, we are far away from pesticides as such or what is known as crop protection . It is not our core business. There are companies such as Syngenta, BASF, Bayer that do have crop protection as their core area, either through molecules on patent, or in the off patent industry, or commodity products.We are not there. We have focused on the softer, slightly greener side, such as biostimulation and specialty. Now, however, we have realized through the demand of our customers, that perhaps it would be good at some point in time, to have some kind of crop protection, but with a natural base. An extract of something".

-Is there anything definite in this regard? Have you made progress on any biocontrol products? 

"We have been working on different projects for a little over a year now among which some molecules for biocontrol are being considered. The goal is to try to close the gap in our portfolio of products that are plant-friendly, soil-friendly and environmentally friendly, which is very important to us." 

“Nosotros en principio estamos alejados de los pesticidas como tal o de lo que se conoce como crop protection. It is not our core business (...). However, we have realized through the demand of our customers, that perhaps it would be good at some point in time, to have some kind of crop protection molecule, but with a natural base»

-Back to the subject of biostimulants. How big is it and how much is this market growing? 

"We believe it is roughly at US$4 billion globally. But it is not a very clear figure. But let's see: of that total amount, Europe generates about US$1.5 billion, of which it consumes US$700 million, so it has a net consumption of US$800 million. Perhaps US$1 billion. I believe that the United States has a participation of about US$400 million, maybe US$500 million. In the case of Latin America, the region should total some US$ 300 million, perhaps US$ 350 million. Half of that is Brazil.  

-What about growth rates? 

"In the case of Europe, it should be around 11%. United States and Latin America should be at slightly lower rates, around 10%. Today, if you look at the crop protections segment, there are much lower growth rates, although with much higher volumes and with more intense competition, because in the control molecules, it all works more or less the same". 

-Latin America does not seem to be growing much compared to the rest. Why?

"It is true, Latin America is not growing as much. There are certain market drivers in the Latin American region that, for example, do not take place in the United States. For example, in the region there are lower prices for the products harvested. The prices charged by the producer are lower. In the case of fruit, for example, at a local level, the price is much lower than the price sold in the USA."

-Do you refer to the fact that Chilean or Peruvian grapes sold at Wal Mart in the U.S. are at the same price as those harvested in California, without having gone through transportation costs?

"Of course, the producer price is different. And remember that it is the grower who makes the decision whether or not to apply a bio-stimulant. There are other players that determine a lower use of biostimulants." 

-What other factors?

"Another issue that has an impact is that, in general, the Latin American region has a slightly more complicated climate. I'm not going to talk about tornadoes, which are very specific, but in general, the weather is a little more complicated: there is either a lot of drought or a lot of rain. It's either too hot or too cold. In addition, I believe that Latin American producers are more distrustful of organic products. One can bring a product endorsed by the University of California, by the University of Chile, by a European university and in Latin America the answer is 'let me see it first; show me how it works here and then we'll see it'. And that is because for many years, farmers have been getting knocked on the door with these products that we call snake oils. Products such as aguas pintadas or chutamas from Mexico. But the industry has increasingly moved away from that: there is more and more professionalism regarding biostimulants, more support from science and universities." 

-Do you think these drivers can be reversed? The price difference seems to be rather structural. Could Latin America catch up with Europe, for example, in the use of biologics?  

"It is true that the price difference thing is complicated to change. However, we are already seeing that there is more population and the same land, the same farmers; therefore, at some point food prices are going to go up. In addition, there are other market drivers that come into play. For example, the industry in general is gaining traction with customers. Customers are starting to believe more in us. And that's because we, as an industry and as a company, have invested a lot of dollars in tests that show that in a certain geography and under certain soil conditions and under certain climatic conditions, the products do perform well. In addition, consumers, including those in Latin America, are now demanding higher quality products. How do we obtain higher quality products? We have to get crop protection on the one hand -ok, check-, but now what? We already protected it, it controlled pests, how do we make it grow more? How do we get improve the yield? In the past, people used to buy any fruit that was available in the supermarket:russet, small, broken- and it was sold because it was what was available or what I could afford to pay for. But the economy has grown and today demands better quality. That is another market driver." 

So far, Verdesian's manufacturing capacity is concentrated in the United States. However, it has sought alliances with foreign laboratories so that they locally formulate some specific lines of their products. Brazil was the first market where it was carried out.

-Add to that the concern for sustainability... 

"And that's another driver: today there is a lot of awareness of productive sustainability. That is, the lowest impact through hard fertilizers; the lowest impact in terms of the environment through the application of pesticides or some other hard molecule." 

-In terms of geographic markets: where will the focus of Verdesian's growth be in the coming years? 

"If you look at where we are putting more investment in terms of human resources, adding more people, more team, I think it is the Americas, mainly Latin America, from Mexico to the south. We are also looking at a lot in Europe. I would say Latin America and Europe, although we are also placing a lot of effort in India." 

-And in Latin America, you are going to grow with acquisitions...

"Yes, yes. As I mentioned, we are moving forward with two operations. I believe we should have positive news in the coming months regarding both. They are companies from the region but with a global presence".

-In addition to what happens with these two acquisitions, are you planning to increase your presence in the region by manufacturing locally?

"Yes, yes. We are already doing this in Brazil. For the most part, the companies Verdesian has bought have been companies that manufacture in the U.S. But we have searched and found those who can formulate outside the U.S. for us. And this is not only to seek efficiencies. But also to solve the challenge of port congestion. We have a traffic jam at ports never seen before. There are no containers available. And when there are, they get booked super fast and you run out of them. In addition, there are problems with the trucks, because there are no drivers. Therefore, we have sought to build efficiencies by looking for companies that, under NDA, under secrecy, will formulate a specific product for us in other countries and we have started in Brazil. For about a year now, with a very specific product line, we have been doing this in Sao Paulo. That was the first. Later, one was added in Spain."