FIMI Slates NIS 400m IPO in Building Products Company

Michael Rochvarger
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Inrom Construction Industries looks likely to cash in from increased construction of new housing units.Credit: Tomer Appelbaum
Michael Rochvarger

FIMI Opportunity Funds, Israel’s largest private equity fund, unveiled plans Sunday for an initial public offering in a building-products group it controls that may turn out to the biggest IPO on the Tel Aviv Stock Exchange this year.

FIMI, which is headed by Ishay Davidi, plans to raise 400 million shekels ($115.2 million) floating its wholly owned Inrom Construction Industries at a company valuation of 1 billion shekels. On top of issuing 40% of the shares in Inrom, FIMI may also offer investors an option for another 10%. Thus, unless Tnuva, the giant food maker controlled by the Apax Partners private equity fund, goes public this year, Inrom will be the biggest IPO in Tel Aviv. The company will enter the TA-100 index.

Although no date has been set for the IPO, FIMI started its roadshow for investors Sunday with the intention of completing the IPO by the end of May.

The entire proceeds of the IPO will be pure profit for FIMI, which has already earned back its entire investment in Inrom Construction in the form of 160 million shekels in dividends it has collected over the past three years. In addition, FIMI is paid 5 million shekels a year in management fees by the company.

FIMI acquired the businesses in two stages over 2007 and 2008 from the Shrem Fudim Group for a total of 200 million shekels, minus cash on the books, and delisted the shares. The fund not only acted to improve the company’s business performance but rode the crest of a growing building starts in the intervening years.

Inrom Construction comprises three subsidiaries, half of six the original Inrom controlled. The first, Nirlat Paints, a maker of paints and sealants, is 62%-controlled by Inrom, with the rest owned by kibbutzim Nir Oz and Nirim in equal parts. The other two are wholly-owned Ytong Industries, which is best known for its insulating lightweight construction blocks, and Carmit, which makes a number of building products such as glue, mortar and sealants.

Eldad Ben-Moshe, a senior partner in FIMI, will be the CEO of Inrom and Davidi will serve as chairman as FIMI will retain as much as 60% of the company after the IPO.

The valuation for Inrom Construction hinges on the construction market, which is going through a period of flux now as the government seeks to implement programs aimed at lowering home prices by spurring new construction. “FIMI was undecided whether to float the shares now or wait until the Housing and Construction Ministry releases more land for development,” said one source. “In the end, they decided to go ahead with the IPO.”

Inrom Construction does not include three other units acquired from Shrem Fudim − Alony, Orlite and Urdan − that were spun off from the construction business and will remain privately controlled. Urdan makes cast metal products mostly for military industries, Orlite makes lightweight composites and Alony makes a number of construction finishing products such as tiles, ceramics and fittings.

FIMI will most likely sell off or conduct IPOs in the three firms, which are currently valued at 400 million to 500 million shekels, at some later date. The means the total return from Inrom for FIMI could reach 1.8 billion shekels, eight times what the fund paid for it six years ago.

Inrom’s financial reports, which were released publicly Sunday for the first time, show a profitable company with double-digit growth rates. The firm has significant cash flow and no debt. It will initiate a dividend policy as of 2014 of distributing 75% of its profits to shareholders. It is estimated the share will return a 7% annual dividend yield for now.

Inrom had revenues of 809 million shekels in 2013, a 9% increase over 2012 and 16.6% over 2011. Operating profits reached 119 million shekels in 2013, a 40% jump in two years. Some 49% of revenues came from Nirlat, 30% from Ytong and 21% from Carmit.

The bottom line showed a net profit of 67 million shekels in 2013, an increase of 42.55 percent compared to 2012 and 2011. Shareholder equity was 166 million shekels at the end of 2013, which supported a total balance sheet of 622 million shekels.

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