Selling a Grain Handling, Packing or Cold Storage Business

Throughput is what the buyer is paying for

An elevator earns from handling, drying and storing grain, and from the margin on grain it buys and resells. A packing house earns from the fruit, nuts or vegetables it sorts, packs and ships. A cold storage operator earns from pallet positions rented and the handling in and out. The buyer wants to see volume for several seasons, because one big crop or one poor one tells them little. A weather year in either direction will be explained, and the buyer's lender will want to see the explanation in the numbers.

Capacity matters alongside volume. A facility running near its limit at harvest has a growth story that requires new construction, and a buyer who sees empty bins or half-full rooms will ask what could fill them. Storage fees, drying charges, handling rates and the mix between fees and commodity margin all need to be broken out. A buyer reads fee income as steadier, and margin on grain owned as riskier, because the second moves with markets the owner cannot control.

Growers are loyal to people

Most of the volume arrives from a list of growers who deliver year after year. A buyer asks how many there are, how much the largest ten deliver, and how long each has been coming. Some have written agreements, such as forward contracts for grain, marketing agreements, or packing contracts with growers and shippers. Many do not. If the owner has the relationship with every large grower, that is the central risk in the sale, and the buyer will ask what keeps those growers delivering after the owner is gone.

On the sales side, a packing house often depends on a few retailers or shippers. The agreements, the delivery schedules, any quality or food safety audits those customers require, and any pricing formulas all go in front of the buyer. Our post on customer concentration explains why a few large accounts weigh heavily on value.

An irrigation or farm service company has the same dependency in a different form. The work is sprinkler and pivot repair, pump service, installs, parts counter sales and sometimes custom application, and the buyer wants to know whether the farmers call the company or call the owner by name. Dealer agreements with equipment makers are valuable and often need the maker's consent to transfer, so read them early.

Equipment, buildings and deferred spending

The equipment list is long and the buyer will want to go through it with an inspector. For an elevator it includes the legs, conveyors, dryers, scales, bins, aeration fans, the pit and the rail loadout if there is one. A packing house has sorters, washers, coolers, packing lines and forklifts. A cold storage building has refrigeration compressors, evaporators, racking, dock doors and the controls that tell the buyer when something is about to fail. Keep maintenance logs for all of it, and write down what has been replaced and what is overdue.

Deferred maintenance is the single most common point of tension. An owner who has nursed a dryer for another season will be asked about it, because the replacement cost can be large enough to change the price. Ammonia refrigeration brings safety and inspection duties of its own, and buyers will ask for the records. If the facility sits on land the owner holds personally, the transaction may need to include that land or a lease, which we cover in the lease is part of the deal and in our post about selling a business with real estate.

Licenses, inspections and what moves with the business

These businesses operate under more oversight than most small companies. A grain warehouse may hold a state or federal license and carry a bond. A packing house usually holds food safety certifications and passes audits by the customers who buy from it. Cold storage may be registered with a food regulator. Scales are inspected and certified. Environmental permits cover dust, wastewater, fuel storage and refrigerant. Irrigation businesses may hold contractor licenses, and custom application work needs applicator licenses held by individuals.

Which of these stay with the business and which belong to the person or the site depends on the state and the type of license. A buyer will not assume anything transfers, and your attorney confirms what applies. Allow time. Some approvals take months, and a buyer's closing date should be built around the slowest one.

Water is its own subject. Where a facility or a service company holds water rights, wells or permits, the buyer will want to see them and see that they stand in the right name. Rules differ by state and sometimes by district, so leave this to your attorney early.

Seasons, inventory and working capital

Timing a sale matters more here than in most industries. A closing in the middle of harvest means the buyer takes over full bins, open grower accounts and cash going out the door in a hurry. A closing in the quiet months is easier, but the buyer has to finance the next harvest almost at once. Both sides will argue over how to count inventory, who owns grain stored for growers, how to value receivables from farmers who pay after the crop is sold, and how much cash the business needs on hand. Our post on working capital pegs and holdbacks helps explain how that is settled.

Grain or product held for others is a separate issue. Storage receipts, warehouse records and the owner's own position in the market have to be reconciled before the closing, and a buyer's attorney will insist on it.

What sinks the sale and how to get ready

Most agribusiness deals that fall through had a known problem. A large grower sold to a competitor. The equipment needed more than the buyer expected. A license could not be moved on the closing date. The records of stored grain did not match the physical count. A bad crop year was mid-sale, and the lender lost its nerve.

Get a clean set of books that separate fee income from grain trading, a complete equipment list with service history, and a grower list with years of delivery. Put important agreements in writing. Introduce a manager or scale operator to growers while you are still around. Review your permits and licenses and make a list of what each requires on a change of ownership.

When you want to know how a buyer would value what you have built, our page on selling an agribusiness or farm infrastructure company is the place to look. Business Advisors of America starts with a valuation from your own records and prepares the package a buyer and lender will expect, and we are glad to talk through your timing around the next harvest.

This article shares our opinion and general information. It is not legal or tax advice. Always speak with a licensed attorney for legal advice, and a qualified tax professional for tax questions, before you act.