Agri-tech sector braces for M&A surge as investment plummets

DAI Magister, a global agri-tech firm, has noted a significant decrease in investment in the agri-tech sector during 2023, which has set the stage for a robust merger and acquisition (M&A) activity in 2024. Industry investment had fallen by 40% from the $11.8 billion reported in 2022 to $7.1 billion in 2023. The most severe fall was seen in indoor farming, where investments fell from $2 billion to under $500 million.

This financial contraction led to startups and new entrants to the market shifting to more sustainable business models in an attempt to attract potential buyers. The sector is also set to experience a surge in M&A activity due to the entry of tech companies, drawn to the sector by the vital role data plays in agriculture and the need to transform the industry in response to mounting environmental concerns.

According to Ali Al Suhail, Vice President at DAI Magister, the devaluation of agri-tech firms means that venture-backed and early-stage startups are expected to continue experiencing challenges in 2024. He stated, "In order to attract the right buyer, agri-tech firms need to consolidate their messaging to crystalise the distinct challenges and opportunities within the sector."

He further elaborated, citing, "Precision farming firms, for example, could emphasise technological synergies to attract tech buyers. Fintech solutions for farmers will need to draw in investors by showcasing fund management capabilities." He also highlighted the need to educate the wider market about the challenges of the sector and how innovative solutions could help to drive the industry forward.

Significant progress has been observed in the first quarter of 2024, with new entries to the agri-tech industry aimed at driving tech adoption. Al Suhail remarked on the developments in the sector: "We've seen some interesting new acquirers entering the market. Where historically farmers' limited adoption of agri-tech solutions had dampened their ROI and data standardisation, a recent shift has signalled a broader embrace of tech applications driven by a regulatory focus on climate and farmer efforts to optimise yield."

Big tech companies, including Microsoft, Google, and Amazon Web Services (AWS), have shown interest in the sector, partnering with key industry players to create data solutions for the agriculture industry. Al Suhail concluded: "The entry of tech giants may help break the agri-tech M&A valuation ceiling, which has seen only a dozen companies surpass the $250 million mark over the last decade. This could unlock fundraising opportunities for growth-stage players in the sector, who have faced doubts from investors on their ability to cross the $250 million valuation mark."