Over the past six weeks, many of you may have been reading our New Zealand focus on all things machinery. Through this, a lot of you have probably picked up on the fact that contracting in New Zealand is run as a proper business.

In New Zealand, there are between 800 and 1,000 agricultural contractors (provided by Rural Contractors) which work on 14,000,000ha of land where there are 55,473 holdings.

Compare this with Ireland, where there are over 4,500 agricultural contractors (provided by FCI) which work on 4,886,600ha of land where there are 137,500 holdings.

So the nature of the beast in New Zealand is that a lot of contractors are quite big.

Many of the contractors that I visited won’t hold on to a machine that doesn’t pay its way. There is no subsidising – it is sold on without question. Another big difference to Ireland is that all bills are issued at the beginning of each month with payment due on the 20th, no questions asked.

Probably the most interesting thing I saw in New Zealand in terms of contracting is how businesses are sold on.

In these pages, we profile three different case studies of how a contracting business is passed down through family, how it’s possible to work your way up through a business into co-ownership, and how a contracting business can be entirely bought out.

Could similar techniques be adopted in Ireland?

Case study one: the Prichard family, Taupo, North Island

Brothers Sam (26) and Rhys (28) Prichard.

Brothers Sam (26) and Rhys (28) Prichard grew up working alongside their parents in the family’s agricultural contracting business.

Last year, their parents, Clive and Coralie, were looking at retiring from the contracting business and decided to focus on the family farm. This meant the two sons had to decide between taking over the business or it being sold on.

After some thought, Sam and Rhys could see a good future for contracting in the area and decided they wanted to take over the business in partnership, buying 50% each. After sitting down with their parents, and later their accountant, the business was valued based on its yearly earnings.

From here, the two brothers agreed to buy 10% each for five years. This meant that after five years, each of them would own 50%. This included buying into the business debt such as all the repayments on the new equipment. Interestingly, the Prichards’ father originally got into contracting by buying a small business back in 2008.

Last month, I caught up with the brothers to see how things were faring out. At this stage, they had just bought their first 10% of the business each. This year, they took over the company phone and organisation of the work for the first time.

They have found a nice way of splitting up the workload. Sam handles all the calls and organising for the silage work and Rhys handles the cultivation side of things. Depending on the time of the year, the phone is diverted to one of the brothers’ phones.

Sam explained: “The partnership is working very well. As we divert the phone to either one of us depending on the time of the year, it helps to spread the workload and stress. We run a shared planner on our phones, which means that at any one time both of us know exactly what work is on.

“It’s good to be able to bounce ideas off someone who’s like-minded. It makes things a lot easier. If one of us needs to go somewhere for a day, we’re not worried because we know the other guy will keep things running smoothly.

“We’re at a nice size at the minute. We service 40 clients within a 50km radius. We employ three people full-time (including myself and Rhys) and have four seasonal guys, including two from Offaly.

“We run two Kuhn combi balers, making 30,000 bales across eight months of the year. We bought a new Schuitemaker forage wagon this year which we work in co with another local contractor. We also offer a full cultivation service, typically covering over 1,000ha/yr. The fleet is made up three Cases, two Fendts and two Masseys.”

Case study two: Jackson Holmes

Andrew Jackson and Todd Holmes.

Andrew and Valerie Jackson originally moved to New Zealand in the early 1990s, before setting up a baling business. Soon after, the introduction of irrigation and the widespread conversion of sheep farms to dairy in the area saw the business go from strength to strength in a short number of years.

Todd Holmes came to first work part-time for Andrew in 2000 while he was studying mechanical engineering in college. From here, Todd worked in engineering then overseas contracting in Co Fermanagh. After joining the Jackson’s on a full-time basis in 2006, he continued to work and soon took on the role of operations manager, managing staff and workload with Andrew.

After seeing an opportunity in the forage harvesting side of things, Todd and Andrew discussed setting up a separate company in which they could be 50:50 partners. Jackson & Holmes forage harvesting entered the market in 2008. During his time in contracting, Todd had developed a desire to own a contracting business, but felt dividing existing work, creating more competition and lowering prices was not a smart way to do it. He also placed immense value on the great working relationship and friendship he had developed with the Jacksons.

To keep the initial investment to a minimum, the mowing and haulage was subbed out to other contractors, while a tractor and rake were hired in.

Over the next few years, both businesses grew. It got to the point where the same customers were getting invoices from two different companies which were very closely related. As a result, Todd approached Andrew about merging the two companies. Andrew agreed and the business accountant valued both contracting businesses based on the plant values and goodwill (the clients and workload). Todd then increased his shareholding to make the new company shareholding split 50:50.

Business

Todd explained:”Often times with a contracting business what happens is a person will work hard to build up a business over the years. If they have no one interested in taking over the business, it usually will eventually scale back or be sold on.

“If you want to be in partnership you have to have a good working relationship and obviously get on quite well. There has to be give and take. You have to be willing to let some things go; it works both ways. Being in partnership means we are both not as tied to it all the time. We have focussed really hard on making all the roles in our business sustainable for people to have a a long career with us.

Now known as Jackson Holmes Contracting and Supplementary Feed, the firm has worked hard on building one of the most professional services in the South Island.

It runs 25 tractors, two forager outfits and 10 balers along with offering a full range of other services. The business currently employs 42 staff and is just getting ready to move into a new purpose-built base.

Case study three: Waddell brothers

Growing up on a mixed cropping and contract-rearing farm, brothers Tom and James Waddell each went to work for agricultural contractors shortly after leaving school. In 2016, the brothers had got to the point that they would like to come home and go farming full-time or set up their own business.

Despite the family owning a 370ha (914ac) block, they felt this wasn’t enough to provide for three full-time wages. After looking into expanding the home farm, Tom noted that farmland was very expensive and it would have been difficult to justify buying enough land to create a viable farming business. Just as they were looking into the prospect of setting up their own contracting business, a local specialised tillage contractor who plants the Waddells’ tillage land approached the brothers to see if they would be interested in buying his business.

Tom and James Waddell are hoping to cultivate 4,000ha of land on hire this year.

The contractor in question was in his 60s and had got to the stage where he wanted to retire. He was hoping to sell his business to a small or specialised operator who would look after his clients. The brothers decided they were interested and visited him. The total business, including the machinery and the list of clients, was valued by his local machinery dealer and then by the accountant.

From here, the solicitor drew up an agreement with the terms and conditions of the sale of the business. This included conditions that the contractor’s main driver, who worked with him for over 20 years, had to go with the business. The business was sold with a list of 40 clients. A clawback was included in the deal that if a certain percentage of the clients didn’t work with the Waddells for year one, a certain amount of money could be claimed back.

A restraint of trade on the contractor setting up another business in the near future was also included.

Agreed

After a deal was agreed, the retiring contractor and the Waddells went on to visit each of the 40 clients. The contractor also verbally agreed to stay on taking bookings and in an advisory role for the first year until the transition was complete and to help secure the clients. However, after six month Tom was happy enough to take the reins himself.

Tom explained: “When we initially made the deal with Graeme, no one was told until we visited each client. In our first season, we worked for each of the 40 clients cultivating 2,500ha to 3,000ha, which was phenomenal. We pushed this on again in year two and cultivated 3,000ha to 3,500ha. Now, well in to our third year in business, we should hit the 4,000ha mark.

“In a typical year, we will be cultivating for eight to nine months. The work is split 50:50 between traditional cultivation and minimum tillage. The plough has made a bit of a comeback in our area in recent years with the rise of fodder beet. We will be sticking to the cultivation side of contracting. We’ll focus on what we’re good at.”