An iconic Israeli company is changing hands: Netafim, the kibbutz-founded manufacturer of drip irrigation products, is being bought by Mexichem at a company value of nearly $2 billion. Mexichem vowed to keep manufacturing in Israel for 20 years.
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Altogether Mexichem is buying 80% of Netafim, the world's biggest manufacturer of drip irrigation systems, for $1.5 billion, a deal that values the company at $1.9 billion.
The Permira investment fund, which acquired a controlling interest in Netafim six years ago, will be getting $1.16 billion for its entire 61.3% interest. Mexichem is also buying 12.7% from Kibbutz Hatzerim (which will be keeping a 20% interest) for $240 million. Kibbutz Magal is selling all its shares for $114 million.
Mexichem, which makes pipes from PVC, closed trading on the NYSE at a market cap of $5.8 billion.
The auction for the controlling interest in Netafim had been run by Wall Street giants Merrill Lynch Bank of America and Goldman Sachs. As successful bidder, Mexichem beat out five other contenders, including Fortive and Stanley of the U.S., the Chinese investment funds Ningxia and Primavera Xinlong, and the Singapore government's Temasek fund.
Netafim manufactures at three plants in Israel, in Kibbutz Hatzerim, kibbutz Magal and Yiftach. Mexichem undertook to maintain manufacturing at its present level for 20 years.
Permira bought the controlling interest in Netafim in September 2011 according to a company value of $850 million. (Since then, the MSCI World index has risen 78% and the S&P-500 index of blue chips has gained 118%.) Netafim's first years under Permira were marked by sluggish growth, but subsequently Netafim, run by Ran Maidan, stepped up investments and boosted sales and profits.
For 2017 Netafim is expected to achieve EBITDA of $135 million on turnover of $950 million, compared with EBITDA of $115 million on turnover of $875 million in 2016. Its growth in sales was boosted by increasing sales to China and India, and increasing sales into Africa, including to Kenya, Tanzania, the Ivory Coast, Ethiopia, Botswana, Namibia and South Africa.