S&W Seed Co. announced the acquisition of the assets and business of SV Genetics Pty. Ltd. (SVG), a provider of proprietary hybrid sorghum and sunflower seed germplasm with headquarters in Queensland, Australia.

The acquisition expands S&W’s product portfolio by adding two complementary crops that are expected to provide diversification into higher-margin opportunities while leveraging the company’s existing infrastructure. S&W expects to realize various synergies within its alfalfa production, distribution and research capabilities while also benefiting from the licensing agreements SVG has in place across the world.

Over the last decade, SVG’s breeding program has developed a portfolio of both forage and grain sorghum seed varieties, as well as hybrid sunflower seed varieties, that have produced superior yields in trials in key markets across the globe.

SVG currently licenses its proprietary seed genetics (and sells parent seed) to local market production/distribution partners. The licensees produce hybrid seed using the SVG genetics and pay SVG a royalty on the seed produced and sold. SVG has licensing agreements with 14 different partners to provide its grain sorghum, forage sorghum and sunflower genetics in approximately seven locations throughout the world, including Australia, Argentina, Brazil, Bolivia, Europe, Pakistan and South Africa.

SVG is also actively testing products through agreements in 20 countries with 57 potential commercialization partners.

S&W said it believes that hybrid sorghum and sunflowers can be sold into S&W’s existing distribution channels while providing a significant opportunity for S&W to expand its distribution of alfalfa seed products into new markets, including Eastern Europe and Russia, where SVG already has a presence.

Mark Grewal, S&W president and chief executive officer, said, "Adding hybrid sorghum and sunflower to S&W’s proprietary germplasm portfolio is consistent with our strategy to be the world’s preferred provider of seeds for forage and specialty crops. We see a significant opportunity to leverage the worldwide research, production and distribution platform we have built in alfalfa with the addition of hybrid sorghum and sunflower. The acquisition of SV Genetics and its high-quality proprietary sorghum and sunflower seed varieties, customer base and research program, provides us with an entry into two new large addressable markets. We also see the potential to expand SVG’s products into new markets using our existing global distribution channels.”

The purchase price consists of $1 million in cash and $1 million in S&W common stock (225,088 shares) to be paid at closing, with a potential earn-out payment of up to an additional $3.3 million based on the acquired business achieving 150% of an agreed-upon net income target of $4.2 million for the combined 2018 and 2019 fiscal years.

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Sorghum comes in two types — forage and grain — and is considered one of the world's indispensable crops. It has traditionally been used for livestock feed as well as ethanol but is gaining increasing popularity in food products in the U.S. due to its gluten-free characteristics as well as its antioxidant, high-protein, lower-fat, high-fiber and non-biotech properties. Consequently, sorghum is becoming an excellent substitute for wheat, rye and barley. Additionally, the pet food industry increasingly utilizes sorghum for its nutritional benefits and enhanced digestibility.

The U.S. Department of Agriculture estimates world sorghum production for 2016-17 to be approximately 64 million metric tons. Industry experts estimate the 2016 U.S. sorghum crop to encompass between 7 million and 8 million acres, with the majority of the world’s sorghum is grown in developing countries, primarily in Africa and Asia.

Similar to alfalfa, sorghum grows well in poor soil and in drought conditions, thanks to its hardiness, market versatility and high-quality seed. Sorghum requires less water to grow than many other crops and is generally used as a replacement for corn and other grains in areas where water is scarce.

Sunflowers have multiple specialty uses, including oil, birdseed and human consumption, with SVG’s current seed focus on the oil market. Sunflower oil is light in taste and appearance and supplies more vitamin E than other vegetable oils. It is a combination of monounsaturated and polyunsaturated fats with low saturated fat levels.

Global sunflower seed production in 2016-17 is projected to be 41.2 million tons, up 5% from the current season and above the recent 10-year average. The sunflower seed oil trade is forecasted to rise, supported by very strong demand in India, the European Union, North Africa and the Middle East.