but over the past several years, the California Legislature has passed statewide laws forcing cities to approve more projects and to stop putting roadblocks up for development, especially housing projects. “One way this can affect agriculture is we may start seeing changes in areas zoned for agricultural use,” he said. While some landowners might like the increased opportunity of selling for development, others could be challenged by a housing development going up adjacent to their farm. Another area of law that could hit agriculture has to do with the Tenant Protection Act of 2019. This law strengthens the rights of tenants, which puts landlords in a more challenging position, including landlords with company housing, or even if they have a farmhand or a ranch manager living on the property. Tenants now have additional rights that should be taken into consideration when a landowner is contemplating uses for property that include tenants. One piece of good news for ag companies and farmers is that the on-fire California real estate market has loosened up a lot of lender money for purchasing property or making improvements on land. There has also been an influx of former city dwellers now moving to the “country” now that they are working from home. This has resulted in a “hot market” for many rural locations, but it also brings non-farm folks to those areas, which could impact local rules and regulations. Even though he has spent decades in the real estate business, Hardwick noted that “his crystal ball broke years ago” when asked to comment on whether California is in a real estate bubble or if prices have peaked. He reluctantly opined that it could be a bubble but not as big as the two that saw a precipitous drop in real estate values in 1994 and 2009. Mike Droke of Dorsey & Whitney LLC, Seattle, Wash., grew up in Santa Cruz, Calif. and took many of his ag clients when he moved up to Washington many years ago. “We are experiencing more investment, merger and acquisition activity in all of business, including the ag space, than we have ever seen before,” he said. “From farm to table, there is activity in all areas.” He said large pension funds, investment
firms, larger companies and even individuals are making substantial plays for firms and land connected to agricultural production. “Bill Gates is now the largest ag land owner in the United States,” he quipped. Droke said the activity is being fueled by high valuations and available money at low interest rates. “Why would a school pension fund invest in agriculture? They see agriculture as a good investment,” he asked and answered. “Everything from land to established businesses to processors, agtech and ag inputs.” He does not see this current activity as being a bubble but rather a longer trend. “We’ve been seeing it for the past five years and we see deals that haven’t been announced yet that tell us this is not ending soon. If it’s a bubble, it’s a long and large one.” He noted that there are higher multiples on average than there were two years ago when parties are coming to an agreement on a sales price. But he does not believe these higher multiples (on sales, revenues
or profit) are out of line. He said they are justified by the simple rules of supply and demand—there are many buyers looking to purchase. He did caution that companies considering a merger or acquisition from either the buy or sell side should do their homework and make sure they are armed with specialists advising along the way. “When you buy or sell, it can be very complicated with lots of things to consider including water rights and environmental issues. You need a group of advisors with experience in these areas.” For example, he advised parties to be very familiar with the supplier and customer contracts they have. “Look at your agreements. Can they be assigned to a new buyer or do they need consent from the other party?” he said. Gone are the days, Droke said, when a handshake behind the pick-up truck in the field is sufficient. There are many nuances of contracts that come into play when a company acquisition is being negotiated.
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SEPTEMBER | OCTOBER 2021
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