Equity partnership options to buy into a farm

Equity partnership options to buy into a farm.

Equity partnerships offer an opportunity for young farmers and smaller investors to take part in the rise in farm values driven by high dairy payouts and continuing confidence in the long-term future of agriculture, says Justin Geddes, Crowe Horwath’s Dunedin-based Principal.

“Equity partnerships are a great vehicle to grow your own wealth for both farmers and investors,” said Mr Geddes.

The capital cost of running an economic farm unit runs to several million dollars, and one of the pressing issues facing the rural sector is how to get young farmers into farm ownership.

One viable option is to set up an equity partnership, where a group of people pool their expertise and capital to purchase a farm, often under a company structure. But while there are commercial companies who specialise in equity partnerships, increasingly people with similar interests are forming privately run syndicates, said Mr Geddes. The main focus is on the dairy sector, but with some with interest also in sheep and beef.

“At Crowe Horwath we have databases of sharemilkers wanting to grow, and investors with capital, so we can be instrumental in the formation of an equity partnership.”

There have been some disastrous equity partnerships, making it crucial that partners adopt the right approach and structure and have a shared goal. Mr Geddes said the key ingredients of a successful equity partnership included:

• Drawing up a comprehensive shareholder agreement laying down the specifics on how long the partnership will last, how profits are divided, what happens if a partner wants to withdraw, and how debt is to be handled.
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• A board of directors that gives clear strategic direction to the farm operator without getting involved in the day- to-day running of the business. In equity partnerships a key board member is the chairman, who often may not have an equity interest in the farm, but has key farming knowledge and governance skills.
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• Appropriate specialist advisers including bankers, lawyers, farm consultants and accountants.
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• Budgets, benchmarking and regular reporting to the group are key tools to identifying performance and making changes as each season produces different challenges.
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• Regular communication between all members of partnership avoids confusion and ideally on at least a monthly basis.
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ENDS

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