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Summary

  • TAG was formed in January 2014 to leverage the well-established Taggares family name and farming expertise to acquire, re-develop and operate profitable farmland.
  • TAG will be selling 86% of the company, with the proceeds going to acquire apple and grape farmland.
  • Based on the year ended November 2013 the P/E is 6.7, but it's a stable farmland business where growth can only come from acquisitions.

Based in Kennewick, WA, Taggares Agriculture (NASDAQ:TAG) scheduled a $46 million IPO on the Nasdaq with a market capitalization of $54 million at a price range midpoint of $6.50 for Friday, June 27, 2014.

The full IPO calendar is available at IPOpremium.

SEC Documents

Manager, Co-Managers: Janney Montgomery Scott/ ROTH Capital Partners

Joint Managers: Feltl and Company

Summary

TAG was formed in January 2014 to leverage the well-established Taggares family name and farming expertise to acquire, re-develop and operate profitable farmland in the Pacific Northwest (the region encompassing Washington, Oregon and Idaho).

TAG will be selling 86% of the company, with the proceeds going to acquire apple and grape farmland.

Valuation

Glossary

Valuation Ratios

Mrkt Cap (MM)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

Using fiscal 2013 because seasonal

Taggares Agriculture

$54

7.0

6.7

1.2

1.3

86%

Conclusion

Based on the year ended November 2013 the P/E is 6.7, but it's a stable farmland business where growth can only come from acquisitions.

The rating is neutral.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business

TAG was formed in January 2014 to leverage the well-established Taggares family name and farming expertise to acquire, re-develop and operate profitable farmland in the Pacific Northwest (the region encompassing Washington, Oregon and Idaho).

Existing Operations

TAG was founded in January 2014 and currently has no revenue-generating business operations.

However, TAG has already taken numerous steps to position Taggares Agriculture Corp. for future growth, including negotiating the contractual right to acquire the real property, certain personal property, business operations, water and other rights related to the real property (the "Business and Assets") of Snake River Vineyards ("SRV"), an apple and grape farm located on the Snake River in Burbank, Washington that encompasses a total of approximately 3,200 acres.

In addition, TAG has entered into new strategic partnerships, including a five-year contract with Tree Top, Inc. ("Tree Top") with market-rate pricing terms; negotiated a non-binding letter of intent to enter into a three-year packing agreement with Valicoff that includes a per-bin handling rebate and otherwise market-rate pricing terms; developed detailed farm acquisition and re-development strategies as described in the SEC filing; and established a high-quality management team and board of directors with significant experience and expertise in real estate, investing and agriculture.

TAG's primary focus is on acquiring farmland with the necessary characteristics to grow differentiated permanent crops that are profitable to its business such as tree fruit (e.g. apples), stone fruit (e.g. cherries, nectarines and pears) and grapes (e.g. concord and wine grapes).

These characteristics include an established permanent crop, secure water rights, re-development potential, large contiguous area, existing operations and consistent yields.

In addition, capitalizing on the extensive experience of its management, consultants and advisors, TAG intends to use value-enhancing farming techniques to increase the yield of its crops, such as advanced pruning and thinning techniques, frost prevention such as ponds and wind machines, and other infrastructure improvements.

Further, TAG plans to establish partnerships to improve its economies of scale, such as those with Valicoff, the apple packing shed that will pack, store, distribute, market and sell its apples.

Acquisition strategy

TAG's acquisition strategy will commence immediately after this offering, but will continue over the next two to five years and, will require it to obtain additional financing, accurately identify attractive property, compete effectively with other potential buyers of farmland and successfully integrate and operate these new properties.

Although TAG anticipates launching its re-development strategy upon completion of its acquisition of the Business and Assets of SRV, TAG will not realize certain benefits of these efforts for up to two to five years, if at all, and such improvements may require TAG to incur debt in the future.

Dividend Policy

No dividends are planned.

Intellectual Property

Competition

Competition in the grape and apple industries in Washington and internationally is intense.

SRV faces direct competition by other grape and apple companies, including small family-owned businesses, as well as subsidiaries or other affiliates of large companies, some of which have substantially greater resources than TAG does.

SRV's principal competitors in the Pacific Northwest concord grape industry are The J.M. Smucker Company and affiliated entities and Milne Fruit Products, Inc. and affiliated entities.

The Washington apple industry is comprised of hundreds of small, independently and family-owned farms, none of which have significant market share to constitute any particular competitive advantage.

5% stockholders pre-IPO

T3 Ag Investments, LLC 54.2%

Peter J. Taggares IV Irrevocable Trust 25.8%

Peter John Taggares III & Sandra Kay Taggares 15.5%

Use of proceeds

TAG expects to net $42 million from its IPO. Proceeds are allocated as follows:

Acquisition of Business and Assets of SRV J.V. (See "Related Party Transactions and Structure of the Company and Related Parties" beginning on page 90) less deposit of $133,000 already paid $29,167,000

Acquisition of land and related assets from Bubby T, LLC $700,000

Estimated payment for 2014 in-progress crop costs $864,000

Payment for accrued liabilities incurred for offering costs $249,000

Future acquisitions of agricultural properties consistent with its business strategy $7,362,000

Re-development of portions of its land for new apple varieties, including the purchase of new apple plants $1,000,000

Repayment of debt owing to a related party $550,000

Replacement of equipment, building new facilities and upgrading technology $1,000,000

General corporate and working capital purposes $1,000,000

Seasonality

The sale of grapes and apples is affected by the seasonal nature of grape and apple production.

SRV's sales occur exclusively in the third and fourth fiscal quarters.

SRV recognizes grape revenue exclusively in the fourth fiscal quarter.

SRV recognizes almost all of its apple revenue in the third and fourth quarter of the year following the year in which each apple crop was harvested and delivered to its packing sheds.

SRV's recognition of apple revenue coincides with when the apples are delivered to the purchasers and payment for such deliveries is received.

As a result of the seasonal nature of SRV's business, its working capital requirements are typically greatest in the third and fourth fiscal quarters since labor costs are highest this time.

Disclaimer: This TAG IPO report is based on a reading and analysis of TAG's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: Taggares Agriculture