Equity partnerships are an increasingly popular response to the trend towards larger scale farms and the rising cost of land. For many, equity partnerships are a viable ownership structure that provides an opportunity to achieve business and personal goals that could not be achieved alone.

The National Bank is an established leader in helping to facilitate equity partnerships. In fact, we finance over two thirds of all equity partnerships in agriculture in New Zealand. Below are various aspects of this increasingly popular approach that may be of interest:

Scale of Operations
Ownership structures
Benefits of an Equity Partnership
Issues to be aware of
Finding partners

Scale of operations

In recent years, joint ventures have been most common in dairy farms milking over 500 cows. Farms of this size can cost more than $4 million to set up. Equity partnerships in sheep and beef farms are less common but interest is increasing. Economics for sheep and beef operations vary considerably, and usually involve at least 6000 stock units. Other specialist industries where joint ventures are common are viticulture, kiwifruit and broiler chickens.

Ownership structure

The preferred ownership structure for an equity partnership is almost always a company. The company generally comprises a number of shareholders, with one shareholder usually being the farm manager on salary.

The basic advantages in this arrangement are continuity, transferable ownership and limited liability. A company may also provide a transparent, regulated structure. However, there are a number of issues that need to be addressed if the venture is to be successful - see next section.

Benefits of an Equity Partnership

The four main advantages of equity partnerships are that they enable the partners to:

• Pool their capital
• Share the risk
• Leverage specialist skills and/or capital assets
• Achieve high performance efficiencies of scale
• Investors benefit from an opportunity to grow their business and achieve efficiencies of scale with shared capital outlay.

The managing equity partner benefits from ownership with a reduced level of capital input.

Managers and sharemilkers benefit from an opportunity to progress to full farm ownership.

Retiring farmers benefit from an opportunity to remain involved in the industry.

Issues to be aware of

Joint ventures need to be well constructed, and considerable time and effort may be required to set up an equity partnership, particularly at the outset. However, the time is well worth it as getting the structure right at the start is usually an indicator of success in the future. In particular:

• All potential issues should be recognised, addressed and reconciled at the start. Ensure that all issues from each partner are put on the table for discussion to avoid problems later.
• A clear exit procedure is one of the key issues to decide at the outset. Good relationships between partners and a common goal for the company are key to success.
• A shareholders' agreement is recommended to ensure the expected outcomes of the shareholders are identified.
• Sound professional advice will help facilitate the process. Expert legal and accounting advice should be obtained.

Finding partners

Equity partnerships normally involve a small group of investors who know each other or are introduced by a common party. Individuals are usually already involved in the rural industry and have a good knowledge of the proposed investment.

Forming an equity partnership is an involved legal and financial process. As many have found, attempting to put an equity partnership together can be complex, time-consuming and costly.

Contact us today to find out more information.

To provide helpful information and facilitate the formation of equity partnerships, The National Bank has a dedicated Senior Rural New Business Manager, Andrew Laming.

Andrew has been with Rural Banking since 2000, initially as a Rural Manager and now as a Senior New Business Manager. Andrew has also worked on specialised rural banking offerings, bringing together farmers and the Bank with their preferential equity scheme to invest in farming operations. He has, and continues to be involved with, equity partnerships personally.

Andrew can offer valuable experience and expertise to:

• Assist in facilitating new partnerships
• Provide information on equity partnerships generally, potential partners and opportunities
• Facilitate the management of existing ones

For more information contact:

Andrew Laming on 03 684 8363 or 027 246 0946

Most equity partnerships in dairy farming have been established on larger-scale dairy farms in Canterbury and Southland. This is due to the greater number of large-scale farms available for purchase and the lower property values relative to the main dairy farming areas in the North Island. Opportunities in sheep and beef have been less common throughout both North and South Islands.

Below you’ll find the latest opportunities in Equity Partnerships. You will need to do your own detailed research on specific proposals with your own advisers to make sure that you are happy with any investment decision you make. The Bank is not recommending people get involved in any specific proposal, as everybody will have their own unique personal needs.

Current opportunities in equity partnerships

Current equity partnership opportunities include:

• Equity investment required in established dairy farms with management in place
• Equity Manager opportunities in established farms
• New farm purchases requiring further equity partners
• Development opportunities in high country farms.

These opportunities are not an offer of securities for sale or subscription to members of the public in New Zealand in terms of the Securities Act 1978. The Minimum subscriptions for each of these opportunities are $500,000.

For more details contact Andrew Laming on 03 684 8363 or
027 246 0946.

To subscribe to the Equity Partnership Email Updates and our Equity Partnership newsletter, simply send an email with your first name, last name, postal address, daytime phone number and email address to equitypartnerships@nbnz.co.nz.

You can unsubscribe or change your subscription details at any time by emailing equitypartnerships@nbnz.co.nz or contacting Andrew Laming on 03 684 8363 or 027 246 0946.

These Email Updates are a complimentary service of The National Bank of New Zealand, part of ANZ National Bank Limited ('Bank'). They are prepared based on information and sources the Bank believes to be reliable. All content is for information only, is subject to change and is not a substitute for commercial judgement or professional advice, which should be sought prior to acting in reliance on it. To the extent permitted by law the Bank disclaims liability or responsibility to any person for any direct or indirect loss or damage that may result from any act or omission by any person in relation to the material.

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