S&W Seed acquires IV Seeds, more than doubles its revenue - Increasing price target to $9 a share


S&W Seed acquires IV Seeds, which more than doubles its revenue. We are increasing our price target to $9 a share.

Ian Gilson, CFA

S&W Seed (SANW) has announced the acquisition of IV Seeds, the international marketing arm of Imperial Valley Milling. This affective October 1, 2012 which is the first day of the 2013 fiscal year. The deal includes a long-term agreement that IV Milling will provide seeds to IV Seeds as it has in the past. IV Seeds generated $16 million in calendar 2011, at seed prices substantially below current market prices. IV Seeds also sell other products, some of which S&W Seed used to grow: see:     http://www.imperialvalleyseeds.com/products

We expect the acquisition to be accretive to earnings in the first quarter of fiscal 2013. We have increased our estimates to reflect the additional acres

The deal adds substantial acreage for the production of alfalfa seeds. After the impact of the acquisition and the loss of acres as the contract with Triangle T is ending we assume the net acres under alfalfa will be 9,000 starting October 1, 2012. We do not know how much seed inventory is included in the deal so we are assume there is none.

IV Seeds has a strong presence in international markets where S&W Seed has little or no revenue. There is some overlap in Saudi Arabia but demand in that market currently exceeds supply. Mr. Fred Fabre, President and Co-Founder of IV Seeds will join S&W Seed as Vice President of Sales and Marketing  

The deal is for $3 in cash (S&W Seed had over $8 million at the end of June, 2012), a $0.5 million five-year note and 0.4 million shares of common stock.

Please visit Ian Gilson's coverage page at scr.zacks.com to access a free copy of the full research report.

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