News & Insights

Aqua Capital’s Fund III announces an investment in Solubio, the leader in the on-farm biological solutions segment in Brazil

Aqua Capital is delighted to announce that Aqua Capital Fund III has entered into a binding agreement for the acquisition of a relevant stake in Solubio Tecnologias Agrícolas S.A. (“Solubio”). Solubio marks the first investment platform of Fund III.

• Founded in 2016 and based in Jataí, Goiás, Solubio is the leading Brazilian on-farm biological solutions provider, enabling farmers to produce ag biologicals by supplying both inputs and infrastructure (“biofactories”) at the farm level
• With a unique business model, the company’s biofactories are lent to farmers in exchange for a long-term take-or-pay contract on inputs

• • In exchange, the farmer receives a complete solution for on-farm production, including on-site training, quality testing, agronomic efficiency monitoring and 24/7 customer support.

• Given its business model, Solubio is capable of delivering biological solutions (such as biopesticides, biofungicides, inoculants and biostimulants) at a much lower cost than conventional chemicals and off-the-shelf biologicals

• • As a result of its much lower end-user cost and the effectiveness of biological solutions, clients are increasing dosage by up to six times vs. those of off-the-shelf biologicals or crop chemicals, drastically increasing demand for Solubio’s products
  • Solubio’s customers use on average eight different biological active ingredients, spanning inoculation, biostimulation and biocontrol

• The company should exceed R$220m ($42m) sales in 2022 (+156% y/y growth, and +116% CAGR since 2018), and reach an EBITDA of R$77m ($15m)

• Solubio is a natural «force for good» company. It promotes a sustainable and regenerative agriculture, replacing crop chemicals and reducing fertilizer use (and therefore, reducing CO2 emissions) while also increasing agricultural productivity. Its products are 100% bio-renewable.

Investment Thesis Overview

Given our expertise and track record in this field, we understand that there are several forces driving large-scale adoption of biological solutions globally, and particularly in Brazil:

• High and increasing cost of chemical solutions
• Increased cost and reduced availability of traditional fertilizers
• Decreasing efficacy of conventional crop chemicals, as weeds, pests and fungi become more resistant
• Supply chain concerns given complex crop chemical and fertilizers logistics, with high import dependence
• Societal demand for healthier foods produced more naturally with reduced environmental intervention
• Lower registration and compliance costs as a result of lower toxicity and side effects

Most importantly, biologicals are gaining ground vs. crop chemicals and fertilizers (sometimes used in combination with them) by also generating better cost-benefit equations for farmers in dealing with an increasing array of challenges. With these tailwinds, biologicals have grown at a 45% CAGR over last five years in Brazil and are forecasted to grow at over 25% CAGR during the following five. The on-farm segment is expected to outpace the biological sector particularly in mainstream products, given significant cost economies and superior product performance in certain categories.

Company’s Merit

• Solubio is the leader in its segment in Brazil, with 29% market share in biofactories in 2021, offering winning solutions both in terms of inputs quality and on the on-farm service structure
• The company is ideally positioned to be one of the winners in the biological adoption curve, with low technological risk

• • As the low-end disruptor, Solubio can offer more affordable solutions by integrating commercially available solutions to its active ingredients and allowing farmers to multiply them on-farm at a much simpler production process
  • One 5-liter kit is turned into 500 liters when multiplied in a biofactory

• The on-farm multiplication allows Solubio to achieve a large cost-advantage vs traditional players by capturing four arbitrage opportunities:

• • Lower capex per liter, given that the biofactory capex is a fraction that of complex industrial fermenters
  • Lower COGS per liter, with much less labor and packaging required
  • Lower sales cost per liter, due to higher sales productivity based on annual recurring contracts and the absence of a distribution intermediary, and
  • Lower logistics costs

• The company has a high-quality sales and support team to help farmers 24/7. Its business model allows for recurrency and predictability, as clients operate under 3-5 year take-or-pay contracts The recurrence increases commercial productivity, operating margins and enables alternative methods of debt financing
• High-caliber management team that has delivered over 116% CAGR from 2018-22 by operating ahead of the curve

Aqua’s PGTI Approach

Following our PGTI (Professionalize, Grow, Transform and Impact) approach, Aqua´s value creation will run through four main fronts:

• Professionalize: in an immediate first stage, Aqua will introduce corporate governance procedures, assist Solubio with key hires, improve the organizational structure, and introduce compensation and retention programs
• Grow: Aqua will help the company to enter new markets (already in discussions), both in new channels and geographies, as well as accessing smaller-scale growers
• Transform: Aqua will rely on its previous successful experiences to accelerate innovation and take its R&D capabilities to world-class levels, capturing intellectual property protection
• Impact: Aqua Capital will support Solubio with international best-practices through the implementation of its Environmental and Social Action Plan (“ESAP”), establishing proper procedures on major E&S topics. Solubio will aim to be a leader in carbon credit monetization, where the company has a strong claim to create value.

The closing of the transaction is subject to the approval of the Brazilian anti-trust authority (CADE), among other conditions precedent, and is expected to take place within 90 days from the date hereof.