The private equity fund FIMI is about to take on one of its biggest management challenges ever after winning an auction to buy control of the U.S. company John Deere Water.
FIMI, which is managed by Yishai Davidi, will pay $60 million for the unit of the giant American agricultural equipment maker after beating out competing bids from the private equity found Paine and the Greek company Eurodrip, Israeli drip-irrigation maker Netafim and the British buyout Fund Apax Partners.
John Deere Water was formed between 2006 and 2008 after the U.S. company acquired a strong collection of companies making irrigation equipment, among them the Israeli drip-irrigation maker Plastro, which it bought for $120 million from Kibbutz Gvat. The aim was to create a $1 billion company, but the plan unraveled as a result of poor management decisions.
The newly created John Deere Water was put under the parent company’s agriculture and turf division and marketing was given over to a sales force specializing in farm equipment not irrigation. The unit got little attention because the unit’s sales amounted to some $220 million, compared with $29 billion for the entire division.
The Palstro product line continued to be manufactured at the Palstro plant in Kibbutz Gvat, but sales of its equipment plunged from $150 million to just $80 million to $90 million a year. The John Deere Water products it acquired buying the U.S. company T- Systems, using drip tape technology, had sales of about $140 million annually.
The company’s market position in emerging economies and sectors such as potato and cotton growers made Jonh Deere Water an attractive proposition for Netafim, which is controlled by the Pan European Permira Funds and Kibbutz Hatzerim. Buying the company would have made it the undisputed leader in the drip-irrigation industry.
On the other hand, it would have required closing down John Deere Water’s factories at Kibbutz Gvat and in Migdal Ha’emek. It would have meant backtracking on John Deere Water’s commitment to use the Gvat facilities for another 10 years and to pay the kibbutz $5 million in service fees, something that the members of Kibbutz Hatzerim reportedly did not feel comfortable doing.
Over the years John Deere has written off large portions of its investment in the water unit, the last being a pre-tax write-down of $57 million taken in 2013. The company announced in September that it was selling the unit.
John Deere Water had a loss before interest, taxes, depreciation and amortization of somewhere between $25 million and $30 million last year and posted a net loss of $40 million. The company employs about 1,000 people in plants in the Unied States, Argentina, China, Chile, Australia, Brazil, France, Spain as well as Israel. It has 19 sales offices in 15 countries and works with 70 distributors.
FIMI will no doubt take cost-cutting measures, most critically consolidating manufacturing operations. The members of Kibbutz Gvat are schedule this evening to receive a report on John Deere Water’s sale and approve transferring the company’s obligations to employ kibbutz workers to its new controlling shareholders.