SPAC Star Lavoro Hit by Brazilian Farm Rout Now Seeks Cash

Tarso Veloso, Clarice Couto and Cristiane Lucchesi
4-min read

(Bloomberg) -- Lavoro Ltd., a Brazilian fertilizer seller whose acquisition-fueled expansion helped it ride an agricultural boom, is now seeking investors for a cash injection amid a broader slump in the sector that has engulfed farmers, distributors and investors.

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The Sao Paulo-based firm has held talks including with other businesses and investment funds as part of efforts to raise funds, people familiar with the matter said, asking not to be named because discussions are private. The proceeds would help Lavoro meet its working-capital needs as the company faces tightening credit conditions amid industry upheaval, the people added.

Once a symbol of Brazil’s flush farming industry, Lavoro is fighting to avoid the fate of rivals such as Agrogalaxy Participacoes SA, which filed for bankruptcy protection and has become a prime example of its downturn. Suppliers of fertilizers and pesticides have struggled with a wave of farmer defaults as years of debt-fueled expansion in the agricultural powerhouse were followed by a plunge in prices for key crops and a surge in borrowing costs.

Lavoro — which gained a US listing last year following its merger with a blank-check company led by California agritech investor David Friedberg — has lost more than half of its market value this year, touching a low on Tuesday amid a string of losses. While the company has sought to reassure investors that it can weather the current grim conditions, it has faced increased scrutiny over its ability to pay down debt as competitors have fallen into distress.

“Market players expect more company failures to follow,” Guillermo Fernandez, an analyst for Bloomberg’s Green Markets, said. “Risk management and controls are failing as higher interest rates are making it harder for troubled companies to keep operating.”

Lavoro was formed in 2017 by Patria Investmentos Ltd., one of Latin America’s biggest alternative-asset managers, with the goal of making acquisitions. The firm quickly became one of the largest retailers of fertilizer, seeds and pesticides in South America after gobbling up dozens of smaller rivals in Brazil, Uruguay and Colombia.

In 2023, it combined with a special-purpose acquisition company sponsored by Friedberg’s The Production Board, which agreed to invest $100 million in the new business, then thriving as farmers expanded plantings.

The outlook for Lavoro has since deteriorated. In June, the company said it expected earnings before items such as taxes and interest in the fiscal year ended that month to be only a third of what it initially projected the previous November. Lavoro is expected to report a net loss of 97 cents per share for the period, according to the average of estimates compiled by Bloomberg. Net debt has hovered at six times 2024 projected earnings, according to a Bloomberg calculation.

The retailer has been hit by requests by farmers to extend some short-term payments as well as by delays in new purchases of crop inputs, it said in June.

“Retailers have had to take it on behalf of themselves to provide some advanced-payment terms for customers to try and get them to buy inputs,” Canaccord Genuity’s Austin Moeller said in an interview, citing high interest rates and a shortage of agricultural financing in South America.

From the US to Europe to Australia, interest rates set by central bank policymakers are starting to fall, while in Brazil a new monetary-tightening cycle started a month ago, raising basic rates from 10.5% to 10.75%. More hikes are expected, with traders betting that benchmark rates will rise to 13.25% by next July.

Lavoro has conveyed to investors that it intends to comply with its obligations, including those related to a 420-million-real ($75 million) local bond. In August, the company raised 310 million reais through a three-year credit facility fund backed by receivables known as FIDC-Fiagro to meet its working capital needs. By March, the company had about 1.3 billion reais in borrowings maturing in as many as 12 months, according to the company’s latest financial statement.

Lavoro has “plenty of cash” and is “relatively strong” from a balance sheet perspective, Moeller added. “I’m not really concerned that they are going to have a liquidity event like some of their competitors.”

Creditors are willing to help Lavoro go through difficult times and are pressuring Patria to inject more money in the company, said people familiar with the matter. Patria is confident in Lavoro’s ability to manage the current turmoil and remains bullish on the company’s long-term outlook, other people said.

--With assistance from Leda Alvim.

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