Kohlberg Kravis Diversifies: Invests $100M in Sundrop Farms - Analyst Blog

Kohlberg Kravis Roberts & Co. ( KKR ) continues to strengthen its business by making diversified investments and this time it has shown interest in the agribusiness space. The world's largest private equity firm invested $100 million from its Asian Fund II resources in the innovative agricultural technology company Sundrop Farms Holdings Ltd.

Why Sundrop Farms?

Private equity firms often avoid the agriculture business due to its high price sensitivity, seasonal dependence, and concentrated market power. However, with the use of latest technology and upgraded equipments, productivity level can be increased and an opportunity for earning higher yields can be created.

With Sundrop Farms, Kohlberg Kravis sees that opportunity. Sundrop Farms' greenhouse project, the innovation of a group of young brains from Europe, Asia and North America, uses solar energy and sea water to grow food on dry lands. The capital provided by Kohlberg Kravis will be utilized by this horticultural company to expand its existing operations in Port Augusta, South Australia.

A 20-hectare greenhouse facility will be built, which is expected to produce more than 15,000 tons of vegetables including tomatoes and capsicums every year after late 2016, when the construction of the facility is projected to be completed. Moreover, Kohlberg Kravis' funding will help Sundrop Farms to spread out its business in the Middle East, North America and other markets suffering from irregular supply.

Benefits to Sundrop Farms

The unique technology used by Sundrop Farms has been widely appreciated as it minimizes the use of pesticides, thereby causing environmental benefits. The South Australian Government granted $6 million to provide support to the expansion plans of the company.

Sundrop Farms, with the aid of Kohlberg Kravis and government backing, looks ahead to generate around 100 jobs during the construction of the greenhouse facility and about 200 jobs when the facility becomes operational. Moreover, the 10-year contract with Australia supermarket operator Coles to buy tomatoes and trade them nationally proved beneficial for Sundrop Farms to obtain the financing deal from Kohlberg Kravis.

Our Take

Kohlberg Kravis has been making new endeavors in the Australian market and actively adding resources to support both existing and new investments. Last year, the firm invested in the Australian sandalwood growing company The Santanol Group.

The latest deal will provide Kohlberg Kravis two benefits. On one side, the agricultural business funding will broaden its investment horizon and provide diversification. On the other hand, investing in an environmentally responsible project will earn some brownie points for the company from the Environment, Social and Governance (ESG) supporters.

Currently, Kohlberg Kravis sports a Zacks Rank #1 (Strong Buy). Other investment managers worth considering include Monroe Capital Corporation ( MRCC ), Man Group plc ( MNGPY ) and Noah Holdings Limited ( NOAH ). While Monroe Capital carries the same rank as Kohlberg Kravis, Man Group and Noah Holdings hold a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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