i

Equity partnerships

Equity partnerships – also known as farm or equity syndicates – are becoming an increasingly common way to invest in the rural sector. With a lower threshold to entry, this model provides a viable alternative, for all parties, to traditional farm ownership.

01

What is an equity partnership?

An equity partnership is an agreement between two or more parties to pool their resources, and often their skills, together when making a rural investment.

Today’s farms tend to operate on such a scale that they require millions of dollars of capital investment and a wide range of farm management, business and finance skills.

Equity partnerships might appeal to:

  • Young farmers - opens the door to ownership, which they might not be able to afford otherwise. It can also provide access to important skills that other investors possess. 
  • Established operators - provides access to capital to grow their rural business.
  • Investors - allows them to invest or diversify within the rural sector.

What does an equity partnership look like?

Equity partnerships often take on a company structure where each partner is a shareholder:

  • The company uses a mix of shareholder equity and bank debt to buy all the farm assets including property, equipment and stock.
  • The day-to-day operation of the farm is managed by one of the shareholders, called the equity manager.
  • The equity manager reports to a board made up of the shareholders or their representatives.
  • The board determines the company’s future direction.

02

Creating an equity partnership

Before creating an equity partnership, you should ask a few questions to determine if it’s right for you, and what structure you might like it to take.

1. What are you hoping to gain?

Are you looking to:

  • Take your first step towards farm ownership.
  • Increase the scale of your operation.
  • Reduce your farm debt.
  • Reduce the risk of total ownership.
  • Attract new thinking, ideas and business skills.
  • Fairly distribute assets among family members.

2. What do you need to succeed?

You might be creating an equity partnership to raise capital, but it is worth considering what else might benefit your farm. Could the right partner also introduce important new skills, knowledge or networks? It’s worth considering this from the outset.

3. What are you prepared to accept?

Every partnership involves a level of teamwork and compromise. You should consider if you’re willing to accept:

  • Less control - the board will determine your company’s direction. How much say you have will generally depend on your shareholding.
  • More reporting - if you’re the equity manager you’ll need to report to the board regularly and be accountable. 
  • Potentially difficult to exit ­­- exiting usually involves finding a buyer who’s prepared to pay the market value at the time you’re looking to sell.

Once you’ve weighed up the pros and cons, your next step will be preparing an information memorandum.

03

Preparing an information memorandum

An information memorandum (IM) is a document that outlines the opportunity for investors. Most investors will likely be comparing your IM with others, so consider why they will choose yours.

For the best chance of success, make sure your IM is concise, well-presented and helps an investor answer a key question: “Is this the right opportunity for me?”

To do this, your IM might include:

  • A description of the property and business.
  • Key people in management.
  • A view of your operation’s strengths, weaknesses, opportunities and threats - called a SWOT Analysis.
  • Current financial performance and forecasts.
  • The cost of the opportunity.
  • Anything that gives you an advantage in the market place.

Important note

If you’re using an IM to attract investors, it must comply with several acts of Parliament, including the Fair Trading Act and the Securities Act. For this reason, we recommend you discuss your IM with a lawyer who is experienced in these matters.

Distributing your information memorandum

You can do this by researching the market and targeting individuals or organisations who you think would be interested in this opportunity.

You can also contact an ASB Rural Manager. Through our national and international networks they can look to match you with likely investors or opportunities.

04

Investing in an equity partnership

Before investing in an equity partnership, carefully read over the IM or any investor proposal and consider if this is the right opportunity for you.

It’s also a good idea to find out more about other potential shareholders. You’ll want to know who they are, their reputation, and if they share the same vision as you.

It's worth talking to an independent adviser too, especially if other family members are involved. This way you can reach an unbiased and informed decision.

Things to consider

  • How ownership will be divided.
  • How profits will be distributed.
  • How debt will be handled.
  • How you’ll handle capital expenditure.
  • How the farm will be managed and governed.
  • Responsibilities and reporting procedures.
  • Any liabilities or guarantees.
  • The issue price.
  • What happens when a partner wants to sell part or all of their holdings.
  • How you’ll determine a sale price and the sales process.

We strongly recommend you seek independent advice from your accountant, lawyer and other professional advisers before constructing or confirming a shareholder agreement.

05

Governance of your equity partnership

If your equity partnership chooses a company structure, your company will likely be governed by a board made up of shareholders or their representatives. You and your equity partners can also decide to contract out governance to a specialist governance provider.

The equity manager reports to the board regularly and the board will determine the business strategy and direction, without being involved in the day-to-day management decisions.

Don’t take governance lightly or think your business is too small. Every successful business has a great team behind it.

Things to look out for in a good board

  • Strong leadership from the Chairman.
  • Strong understanding of rural business and long-term strategies.
  • Positivity without blind optimism.
  • Willingness to constructively challenge.
  • Specific skills that compliment yours.
  • Consensus decision making.
  • Respect and good values at both board and CEO level.
  • Willingness to make hard decisions.

06

How ASB can help your equity partnership

Involving specialist advisers early on when setting up an equity partnership can make a big difference to the outcome. You might meet with lawyers, farm consultants, accountants and others. You’ll also probably want to talk to a bank.

At ASB, we’re experienced in supporting equity partnerships and we can help you in several ways.

We have a vast and diverse network

We’ve a local presence across New Zealand with experienced local Rural Managers. We can also tap into a large global network through the Commonwealth Bank of Australia and our ASB Agri Capital specialists.

We’re constantly in contact with rural businesses and investors around the world, and can often connect you with potential partners or investment opportunities.

We may be able to help you source funding too

Buying property, equipment and stock requires a significant investment.

That’s something we like to help with wherever possible, which is another reason to talk to us early. The more we know about your equity partnership, the more confident we can be in your numbers, your partners and your business plan. When those all stack up, there’s a much better chance we can help with the finances.

Next steps

Talk to your local rural banking specialist

Find your nearest ASB Rural Manager.

Find an expert

Call us

Contact your local ASB rural team, we’re here to help.

0800 787 252

Any questions?

Email us and we’ll help with your rural banking query.

ASBRural@asb.co.nz

Other helpful guides

ASB Rural Equity Syndicate Division helps put people with interests or opportunities in rural equity syndicates in touch with each other and does not recommend any specific equity syndicate opportunity. You will need to do your own detailed research with your own professional advisers to assess whether an equity syndicate opportunity is a suitable investment for you. ASB's lending criteria and terms apply.

Rural banking Equity partnerships