Once you decide it’s time to retire from farming, there’s a pile of planning, strategy and communication to fork your way through. Here’s how one couple from Saskatchewan proactively approached the sale of their seed farm, and how they captured value beyond piecemeal selling of their hard assets.
Warren and Carla Kaeding and Roger and Phyllis Kaeding had been growing seed at Churchbridge near the Manitoba border since 1983 after their Hereford herd was dispersed. At one point, they cropped 6,500 acres with about 70 per cent in pedigreed seed production and the rest in commercial grains, predominately canola.
By most measures, they were very successful, with yearly gross sales of $2.5 to $3 million seed and $650,000 to $700,000 in commercial grain. In additon, they also retailed a fair amount of seed from other growers, and did some custom seed treating. As well, they packaged and exported specialty pea, triticale and other annual forage products into Eastern Canada and the U.S., and they have shipped seed to Kazakhstan, France and Argentina on a small scale.
Warren started talking about quitting after seven years of slogging through some tough times, including the disastrous 2004 with three major hail storms followed by an early August frost, the low seed margins of 2007 to 2009, the incredibly wet fall of 2010 and having to seed by airplane in the spring of 2011.
Moreover, land values started increasing exponentially and realtors began approaching their landlords with the idea that now was the time to sell. The Kaedings owned 2,500 acres and rented the remaining 4,000 acres from up to eight landlords. “They all gave me first option to purchase, which I really appreciated,” says Warren. “However, we had just climbed out of long-term debt, I had just turned 50 and was not anxious to borrow another $5 million and be in debt until I was 75, especially when neither son was interested in farming.”
Although both their sons loved working on the farm, they didn’t want anything to do with farm management. Michael is a mechanical engineer, and Matthew an aerospace engineer graduating from Carlton University in Ottawa. “I had been mentioning to Dad that I wasn’t having that much fun any more, and with the boys not interested I was questioning my future,” says Warren. “Then when the landlords came wondering if we were going to buy them out, I half-heartedly threw out the idea to him that maybe I should sell too. He didn’t even hesitate, saying very seriously, maybe I should.
“I guess I just needed his endorsement that it wasn’t going to hurt his feelings if we sold his maternal home and farm.”
So they did: the land sale was completed in the winter of 2011 and they had their equipment auction in the spring. The following March they officially sold their seed retail operation to Graham Sorgard and his family, who now operate the business as Sorgard Seeds.
Although the Kaedings don’t grow seed now, they still manage new and unique varieties using select seed growers and local retailers such as Sorgard Seeds.
The Sorgard family (Graham’s father Charles and mother Eileen) farmed in Iron Springs, Alta., producing bison, beef, alfalfa seed, and grain and also had irrigation and a gravel pit-and-delivery business. Various members of the family have also been in the poultry business in Saskatchewan. A year or two since buying the Kaeding farm, Graham and Emily Sogard also bought a very large, modern egg laying facility close by.
The rollercoaster ride
In retrospect, it was a time when great change was sweeping through the Prairies: wheat prices soared, consolidation of farms revved up, funds were investing in farmland, and land prices rose. In the background, there was political upheaval when a few years later the CWB lost its 88-year monopoly, and the last great wheat co-operative would be sold.
The tale of how the Kaedings farm sold reflects this tumultuous time. Many parties were interested and deals fell through. Along the way, concessions were made and new strategies developed.
Originally the Kaedings sat down with each of their major landlords and discussed a strategy for moving the sale forward. They agreed that since they were going to be selling everything as a package (rental and owned land), they would trust their judgment in picking a realtor and the buyer. The landlords would have final say on any offer made on their package with an eye on how it would affect the final sale.
The Kaedings diligently looked through realtor options, and interviewed three different companies, asking each for their best offer. “We settled on Lane Realty as they had the best comprehensive package to offer, including a very attractive commission with the auction service,” says Warren. “I had also had a business relationship with the realtor before in the seed business and trusted that she would be a good fit for marketing our seed operation since she understood the business.”
When they first listed their farm, two young Dutch guys made an offer on the land and equipment, but not the seed plant. The Kaedings figured out how to separate the seed plant and associated enterprise and were planning to list it on its own in the auction. They had also arranged to provide a sale agreement on some of the essential large pieces of equipment and were going to provide a one-year mentorship.
The entire deal was contingent on an uncle selling a piece of farmland in Eastern Europe to finance the boys’ purchase here. A day or two before their deal was to close, their uncle’s land deal unraveled and he was unable to finance their new operation. “We were a little choked since we believed they had been vetted and were virtually a lock in making the purchase,” says Warren. “We had gone ahead and started construction of a new house in town.”
Earlier an offer had been made by a South African couple but the conditions they were asking for were not acceptable. (They had requested that payment for the operation be spread over a number of years since they could not extract their savings from South Africa all at one time.)
Impatiently, Warren spent the summer attempting to dry out the overly wet land, pooling water and trying to improve some small areas they had newly broken. Numerous offers came primarily for only the land with significant discounts for the yard and buildings and no value on the seed business.
The chances of selling the operation as a seed business began to look slim.
“As time moved on, we were getting impatient with not receiving any substantive offer,” says Warren. “Carla and I had made our minds up that we were going to sell, so we started entertaining some of the more serious offers even though we had to offer some concessions.”
Big changes were happening with the Sorgard family too. In 2009, they had purchased a farm in the Davidson area via a land auction. Within a couple of years, a Hutterite colony came into the area and wanted to buy that farm and surrounding farms to form a new colony.
So the Sorgards began looking around the province for other value-added opportunities, including the Kaedings’ seed farm. However, there already was an offer pending on it so they looked at a dairy farm around Kamsack.
Amazingly, as they were on their way to secure the dairy deal, they got a call from the Kaedings’ realtor indicating the initial offer had fallen through. If they were interested, she said, they were next on the list.
As the last few days of the Kaedings’ listing wound down, they had a reasonable offer, it fell apart, and then the Sorgards’ offer came along at the eleventh hour. It was perfect, says Warren. “A young family wanted to be ambitious, aggressive, wanted to keep our staff, was going to fill our century-old farm house with kids, valued our seed business and they wanted to keep the farm dog permanently and me for awhile.”
The Kaedings retained all of the shares of Wagon Wheel Seed Corp (WWSC) but sold all of the assets out of the Corporation. Initially they had a value established on the Good Will portion of Wagon Wheel, but in the end opted to not sell WWSC. This way there were fewer legal issues involved in wrapping up the corporation, and it simplified some tax implications.
Second, the Kaedings decided there might still be some opportunities to utilize the WWSC name. For example, WWSC still has the marketing rights to three seed varieties and has numerous growers producing and retailing for them.
WWSC provides some income and potentially has a reasonable future income expectation. “We had worked 30 years to build name recognition for WWSC, so we weren’t sure if we wanted to see it go to a new entity,” says Kaeding. “As well, we didn’t want Graham to be saddled with the expectations we had created for our customers.”
A unique part of the deal was that the Sorgards had a one-year mentorship agreement with an option for another half year to follow if the buyer felt it necessary. Warren wanted it written into the contract that he would see the buyer through a complete year of seed planning, planting, managing, processing and marketing, including their first seed plant and operation audit. Kaeding also took Graham to various seed industry meetings, introducing him to some key players.
Both felt it would be beneficial if Warren helped for the April-to-October period of the second year so they exercised the option on the second year. Also, Graham offered all of the staff the option to stay on if they wanted, and the three main employees kept their jobs.
The unexpected added bonus is their friendship. “We still have an excellent relationship and he feels comfortable asking me about strategy, procedures, issues whenever they come up,” says Kaeding.
Setting values was probably the toughest part of the deal, says Warren. Since they weren’t going to be selling the name, how could they arrive at a value for the other non-tangible assets?
As well, since the new owner might not want to carry on the business exactly the way the Kaedings had done, there was a lot of optional value in what they had to offer.
In the end the Kaedings settled on a value for “Good Will” including customer lists, office and work force, and they also negotaited a rate for part of a mentorship agreement that included a value per hour and time expectations, and that also identified the rates for a second year if the Sorgards needed him.
After the sale
Once they had the sale proceeds, the Kaedings interviewed six potential investment counsellors. One was an acquaintance, two currently invested their RRSPs and cash investments, and three had been recommended by contacts in the industry.
In the end, the Kaedings went with someone from the industry who understood their risk levels and how to help plan their future and succession. This was also someone who would personalize their service, and someone they were confident they would be comfortable with for many years.
Of course, they had deferred taxes to deal with on the sale, but they try to keep it in perspective. “As a farmer, you usually do not pay much tax when in the middle of your farming career; you can usually find those tax write-offs,” says Carla Kaeding. “When you sell, you will have a hefty tax bill… but average it over the 30-plus years of farming and the tax bill is still not that bad,”
“You know you did something right when the tax man wants his share,” she says.
They also try to keep it real as far as inheritance. “As long as you’ve given your kids the opportunity to get an education that will secure them a decent job, you have fulfilled your commitment,” says Carla. “I do not believe that you should not enjoy your retirement in hopes of leaving something for the kids when you die.”
Besides, most times the money will come to them long after they really need it. Maybe a better option is providing an education fund for the grandchildren, a special family holiday or giving them sizeable incremental payments at age 25 and 35 so you get to see them enjoy it.
“In your retirement you just need to save enough to pay for your life expenses so the kids do not need to be responsible for you,” says Carla.
The emotional side
The most difficult aspect of selling the farm was likely making the initial decision, says Warren. For the first couple of years after the sale, he spent too much time worried they could have gotten more for the land if they had waited a year or two. “You can worry a lot about whether it is the right time, right value, right buyer,” he says.
However, in the end it all turned out for the best. They got a great deal on the lot for their new house. The contractor happened to have a lull in his production cycle so it was completed in less than five months. 2012 was another challenging farm production year and Warren got to spend a lot of time with his ailing father. When his dad died, he was also able to spend a lot of time to help Mom adjust to her single life.
Then they enjoyed a long summer vacation cruise through Europe, which they had always wanted to do but never could because of the summer workload. Their local MLA then announced he was retiring a year after they sold the farm, so Warren is pursuing his teenage dream of being a politician.
On the downside, Warren misses the contact he had with their very diverse customer base and the network of seed growers, and he misses knowing about the latest seed varieties and the latest agronomic developments.
However, he doesn’t miss the late nights seeding, spraying and harvesting. “I used to like the rush of the season, but it was taking longer to recover.”
He found he couldn’t sit at home for more than one nice, sunny, summer day. “I couldn’t sit on the deck enjoying a beer and reading the newspaper if it was Monday to Saturday,” he says. “Sunday I was good at relaxing but was going stir-crazy sitting around on a weekday.”
Warren admits to concern over what the industry would think. “I was (am) a strong proponent of agriculture, and was not sure how seriously I’d be taken now after ‘bailing out’ on my fellow farmers,” he says. “… I’m not convinced that it still doesn’t bother a few of what I considered close associates in farming.”
The surprise was that, after the sale was complete, the Kaedings have had numerous farmers their age or younger get in touch for advice on how to wrap up their operations, and it feels good, they admit, to help by sharing what they’ve learned.