Mexichem SAB de CV (BMV: MEXCHEM) said it agreed to acquire an 80% stake in Israeli irrigation leader Netafim Ltd. from New York-based private equity firm Permira Funds and other minority shareholders. Kibbutz Hatzerim, the founder, will retain the remaining 20% stake of Netafim. The total enterprise value of the deal is US$1.895 billion.
Netafim is the world’s largest irrigation company. In the past few years it has achieved strong financial performance, with top line growth and improving profitability, reaching total sales of US$855 million for the year ended December 31, 2016. Mexichem will fund the acquisition with a combination of cash and debt.
Mexichem is a global leader in plastic piping, one of the most cost-efficient PVC producer and one of the world’s largest chemical and petrochemical companies. The company contributes to global development by delivering an extended portfolio of products to high growth sectors such as infrastructure, housing, datacom, water management, among others. With operations in over 30 countries, Mexichem’s global footprint includes more than 18,000 employees, 120 plants, 2 fluorite mines, 15 R&D laboratories and 8 training academies. The company has annual revenues of US$5.4 billion, it has over 50 years of history and more than 30 years trading on the Mexican Stock Exchange.
“This is a transformational acquisition that advances Mexichem’s drive into specialty products and solutions and establishes us as a leading innovator in the high growth, micro-irrigation market. At the same time, Netafim positions us to become a leading developer of solutions to address food and water shortages, and respond to the need of increase crop yields and meet higher sustainability standards for fertilization,” said Antonio Carrillo Rule, Mexichem’s CEO. “Netafim has a long history of being at the forefront of creating smart solutions for the irrigation market. This acquisition will give Mexichem access to this smart technology which can be applied to heating and cooling, water management, Datacom, and other sectors, providing a platform from which to create smart industrial solutions around our existing product lines that serve the infrastructure, housing and Datacom markets.”
Based in Tel Aviv, Israel, Netafim is a global leader in developing, manufacturing and distributing advanced drip and micro-irrigation solutions, with local presence in more than 30 countries, 17 manufacturing plants, more than 4,300 employees and sales in more than 110 countries worldwide. Netafim’s advanced technologies and end-to-end solutions help growers across the world achieve higher and better crop yields while reducing usage of water and other inputs, such as manpower, nutrients and crop protection.
Founded in 1965, Netafim pioneered the drip revolution, creating a paradigm shift toward low-flow irrigation. Today, Netafim provides the most advanced irrigation solutions for agriculture, landscape and mining. Specializing in end-to-end solutions from the water source to the root zone, Netafim delivers turnkey irrigation projects – Including bulk water supply, advanced irrigation systems and digital crop management and automation systems, supported by engineering, agronomic, technical and financing services.
“By combining our current irrigation portfolio with Netafim’s business, we will create a formidable growth platform to drive synergies. With sales of almost $1 billion in the aggregate, this new business unit will have access to the resources, sales channels, and customer base of Mexichem’s global business. Additionally, we expect to leverage Netafim’s resources and expertise to create innovative new solutions across Mexichem’s specialty products. We also see substantial operating efficiencies over time in raw material procurement, logistics, and the sharing of production processes and technology know-how,” added Carrillo.
“We are proud to have won the trust of a leading company such as Mexichem, and believe that together we will have an improved cost position and broader portfolio to support continued profit’able growth and to extend our reach to new customers and geographies,” said Netafim’s CEO Ran Maidan. “We also will be able to apply our R&D and technical expertise in developing end-to-end innovative solutions that Mexichem can offer to its industrial customer base.”
“Netafim is an outstanding business and we are proud to have supported the company’s growth and its critical mission of conserving and protecting water resources,” said Torsten Vogt, a Permira Partner and Co-Head of Industrials. “Over the course of our partnership with Netafim’s management, Kibbutz Hatzerim and Kibbutz Magal, the company was transformed into a best-in-class global leader, with an enhanced focus on innovation and new product development, and an expanded footprint and resources.”
The deal is subject to approval by Mexichem’s shareholders meeting and regulatory approvals and is expected to close during the fourth quarter of 2017. Once the deal is completed, Mexichem will consolidate Netafim under its Fluent Business Group for accounting purposes. Netafim will continue to operate under its current management and with its existing brand portfolio.
Located in the Negev desert in Israel, Kibbutz Hatzerim was founded in 1946. It co-founded Netafim in 1965, and introduced drip irrigation technology commercially to the agricultural community. One of the first agricultural settlements to move from traditional farming to corporate entrepreneurship, Hatzerim has supported continuous innovation in irrigation for over 50 years. It has provided Netafim a rich legacy of down-to-earth rural values combined with cutting-edge agronomic and technological expertise to lead the way in drip and micro irrigation solutions that help farmers around the world.
Permira is a global investment firm founded in 1985, with €32 billion (US$35 billion) in committed capital. Current and past industrial investments for the Permira funds include chemical manufacturer CABB, micro-irrigation specialist Netafim, containment solutions business Bakercorp, and leading fulfillment solutions provider Intelligrated. Permira employs over 200 people in 14 offices across North America, Europe and Asia.
Goldman Sachs, Centerview Partners LLC and Bank of America Merrill Lynch acted as financial advisers to the Permira funds and Netafim and Skadden, Arps, Slate, Meagher & Flom LLP and EBN&Co acted as legal advisers.