Due diligence is an absolutely critical component of the agricultural investment process. When you’re buying a farm, you’re buying a business not just a property. You’re also buying rainfall, soil, access to market, infrastructure, development / diversification potential and a whole range of other attributes.
Most importantly, effective due diligence is the difference between overpaying or underpaying for agricultural assets and is thus pivotal to maximising agricultural investment returns. With over 200 transactions completed to date, years of industry experience, detailed local knowledge and a wealth of benchmarking data at our disposal, Land Commodities has the ability to thoroughly assess all of the elements that in combination dictate the true value of a farm. What’s more, no stone will be left unturned; every risk will be thoroughly understood and evaluated.
Our normal working practice is to separate the due diligence process into two stages. The first stage is the preparation of a Detailed Property Report in which we assess the potential acquisition in sufficient detail to guide the negotiating process, thus allowing you to bid confidently and effectively against competing buyers.
The Detailed Property Report contains (but not necessarily limited to) the following analysis:
- Inspection results – Details of the physical inspection of the property carried out by our staff on the ground.
- Location and market access – Effect on input costs and farmgate price of outputs.
- Infrastructure – Detailed assessment of facilities, infrastructure and services.
- Water resources – Water rights and access to external water sources, assessment of on-farm water resources.
- Current land use and zoning – Comment on future development potential, effect on returns.
- Detailed climate assessment – Rainfall extent, reliability of growing season rainfall, temperature, humidity and solar exposure, likelihood and effect of undesirable weather events (drought, floods, heat waves, frost etc).
- Topography – Field gradient, adverse features.
- Soils – Soil type and physical characteristics; quality and production potential, agronomic limits, remediation requirements if any, soil health nutrient levels, past soil test data.
- Environmental – Soil or landscape degradation and risks, environmental standards compliance issues.
- Management and production history – Farming intensity (stocking rates and rotations), fertiliser and nutrient history, cropping history, yields and production averages and variability.
- Management recommendations – Optimal use recommendations, opportunities for diversification, likely future production potential, effect on returns.
- Post-acquisition expenditure – Commentary on any additional capital investment in infrastructure or capital stock that may be required or desirable for the property to achieve optimal productivity.
- Financial and investment analysis – Past performance, likely future financial performance, investment analysis, future lease rates, likely future returns (from tenanted and operational management models).
- Preliminary valuation analysis – Comparison against other properties currently on the market, comparison with recent similar sales, price and sale history.
- Purchase recommendations – Assessment of buyer demand and local market sentiment, seller motivations, financial status and debt levels, recommended negotiating strategy, target, likely and maximum viable purchase price.
- Important disclosures – History of environmental issues, pests and disease history if any.
- Title and tenure – Ownership, limitations to use, leans and encumbrances if any.
If negotiations are successful, Land Commodities will undertake the second stage of the due diligence process. Pre-acquisition due diligence involves us co-ordinating the efforts of a number of third parties, from agronomists and soil testing laboratories to solicitors, accountants and independent property valuers.
We have excellent relationships with all of the leading service providers in the markets in which we operate and we are able to achieve economical rates on behalf of our clients because of the work volumes we undertake as a group.
The final due diligence process will generally include the following activities and reports:
- Physical inspection of the property and its infrastructure by an independent valuer and preparation of sworn bank standard valuation report assessing current land and infrastructure value.
- Comprehensive soil sampling and laboratory testing to determine condition and nutrient level of soils at the time of acquisition. Prepare an interpretation report on the soil test results including any remediation requirements.
- Orthorectified digital aerial photographic mapping of the property to verify boundaries and croppable area.
- Legal due diligence relating to current ownership, leans, encumbrances, charges, caveats, usage restrictions, mineral / mining licences etc.
Click here to see a sample of the Final Property Reports we produce at this stage of the acquisition process.