We continue our series on Australian buying opportunities by speaking to Michael Kerr from Kerr Capital. Michael discussed his client’s business, a leading nursery specialising in Manuka Honey Plants, which has recently been put on the market for sale. Operating from a modern nursery facility in Western Victoria, the business is Australia’s leading producer of bio-active leptosperum seedlings.
Thanks for speaking to us Michael. Firstly, in simple terms, what does this business do?
At the core, the business is a specialist in growing native seedlings. They grow a diverse range of species. There is a particular focus on Leptospermum (Manuka Honey) at the moment, but they also contract grow a lot of eucalypt seedlings.
The business has developed an innovative, re-usable tree guard product. Sales of this are growing rapidly and is in strong demand across the country, especially from statutory bodies such as catchment management authorities etc.
The business also sells mature trees and various other related nursery products.
What brought the owners into the business? Can you tell us a about their background?
One of the owners was a successful Western Districts businessman who had a farming background and a couple of motor vehicles franchises. In 1999 he joined with the other owner, a highly regarded industry expert, who has spent his life in horticulture and had been operating a nursery in South Australia.
What markets does the business target? What opportunities exist in the industry?
Wholesale seedlings, including Leptospermum, are the biggest contributor to revenue for the business. Typically wholesale orders would start at quantities of ten’s of thousands but can be up to millions of units. The business grows a reasonable percentage of their wholesale seedlings under contract. In these cases the whole supplier may supply their own seed.
The retail customers for this business are mainly web based, though there are still ‘walk-in’ sales at the nursery. Retail customers range from plant enthusiasts to landholders carrying out revegetation, and land improvement to integrated farmers. The company has successfully honed their online presence and back end fulfilment processes.
A third segment of customers are statutory authorities such as water catchment authorities, who are buying significant numbers of product.
The business operates from a modern nursery facility in Western Victoria. How important is this facility and how does it add to the value of the business?
The business operates from a 4ha site in the Western Districts of Victoria. The land was purchased in late 2003 as a ‘Greenfield’s site, and the initial infrastructure was completed for the first production year in the Summer of 2004/5.
Since then, the infrastructure has been considerably developed. It’s been purpose-built and is now a very modern production facility, with robotic seedling transport equipment, and sustainable water management. A major ‘in-house’ transport and logistics capabilities has been installed, for delivering large volumes across long distances as efficiently as possible.
Importantly it’s also the only Victorian production nursery outside the metropolitan area to have myrtle rust accreditation (ICA-42).
The business has many successes, including being Australia’s leading producer of bio-active leptospermum seedlings. How can consumers find out more about the vast expanse Australian plant species?
When you package the physical infrastructure with the know-how and understanding around the ‘science’ of selecting and cultivating the high-grade bio-active species it does get very exciting.
The owners of the business, in response to the rapidly growing levels of interest, developed https://leptospermum.com.au/ as a resource to answer the questions that keep coming as attention on Australian Manuka honey grew.
For anyone interested in the industry this is a valuable resource but it also has great insights on future opportunities and how they will unfold in Australia. The diversity of species in Australia, the relative price of land (with New Zealand) and integrated farming opportunities for existing landholders are some of the topics covered.
What stage of development is the business in? What are its key strengths and what differentiates it from other operators in the sector? How has this evolved since the owners began running the business?
The business has years of experience in growing seedlings, a first class nursery setup and an established workforce. A lot of this experience came from their exposure to the rise and fall of the MIS bluegum industry in the mid-late 2000’s. Combined revenue continues to grow but there is significant capacity to support the expected future growth, especially (but not only) from Leptospermum.
The business has a diverse revenue base, such as the tree-guards mentioned earlier. Their innovative design is catching on. In recent months they have appointed distributors in other states which will further grow sales.
Sales via their e-commerce site to their retail customers also continues to grow month-to-month.There is plenty happening in the industry.
Along with ongoing research on the benefits and increased focus both on the Manuka brand and provenance, there was a major joint venture established last year, between the leading Australian and New Zealand honey players. Overall the business is really well placed to be a major supplier to an attractive growth industry.
Who would suit running this business? Who who would benefit from strategically acquitting it?
We have structured the sale so that the existing owners will stay for a transitioning period to the new business owners. This is combined with a stable current workforce (including senior staff), who manage operations on a day to day basis.
The current owners have proudly grown their business to a thriving company, and are selling now, so that they may retire. While both see the potential for growth, the feel they are ready to move on.
There are a range of buyers who could benefit from acquiring both the freehold and the business.
If the Manuka industry continues to grow at the current pace, there will be increased focus on supply from the existing industry players. Strategically, to lock up a major supplier like this business may present huge growth in the short and long-term.
Other investors/buyers who could capitalise by buying this business, may be diversified agricultural companies. This can be an entity who is starting to understand the importance of a healthy bee population. Even Long-term agricultural land holders, who can buy quality land with a strong yield. Also, other larger nurseries who are after geographical and product diversity.
What further growth opportunities are there for a new owner to expand the current operations?
This is one of the questions I always ask my clients, but on the basis that they were 20 or 30 years younger.
Having developed an excellent reputation over many years, the current owners are trading on that and essentially ‘taking orders’, rather than actively promoting and growing the business. This applies across the different ‘divisions’ i.e retail, wholesale and tree care.
With virtually no marketing, the retail (e-commerce) and tree care divisions are growing strongly. The current organisational structure does not include any sales & marketing or business development functions. The two current owners do work in the business, but on a flexible (ie part-time) basis helping with the day-to-day operations.There is no question that revenue could be grown by an investment into advertising, marketing and business development. Adjoining the nursery is available land for sale, that could be acquired to physically grow the footprint. With the significant know-how other nurseries in other locations, it could be acquired to expand production.
What were some of the challenges faced to get the business to where it is today?
In the early days the business exploded on the back of the bluegum industry. This enabled them to quickly establish their reputation and expertise for growing large numbers of seedlings. It proved that the infrastructure and know-how is industry leading.
However, the end of that boom also left them exposed, and it took a few years to recover from that. The last couple of years have seen a ‘return to growth’ after four or five steady years. There is also a diversity in the business that wasn’t there during the bluegum boom years. This is another lesson we learnt.
What’s the most interesting part of running the business? What should a new owner expect?
The Manuka industry is going to grow at an unprecedented rate in the future. This will create significant opportunities for Australian industry stakeholders, ranging from retailers, to wholesalers, to exporters in the food and health & wellness sectors.
What’s included in the sale of the business?
Everything to operate the business is included; The considerable Intellectual Property associated with the business, the structured handover of the IP, operational expertise and business knowhow from the current owners (via an extended 1-2 years transition plan), Real estate – 4 hectare site, and all the considerable improvements. A State of the art nursery including established infrastructure and an extensive list of modern equipment, and an established & stable workforce.
Thanks for your time Michael
For more information on Michael Kerr Click here
For more information on the opportunity click here