PEI Deal Mechanic: Permira and Netafim

Double-digit growth had first brought Netafim to the attention of Permira’s industrials unit, but it was a call from the firm’s tech team that eventually led to an €800 million investment in the Israeli irrigation equipment provider in 2011.

The caller said that a contact had told them that there was an opportunity to gain a majority position within Netafim, whose owners included three kibbutzim, or collective agricultural communities.

Permira had identified water as one of agriculture’s most attractive sub-sectors but had previously been deterred by Netafim’s crowded ownership.

“Other private equity funds had been around this asset, but we were the only ones that had all the ingredients to get to this majority,” explains Torsten Vogt, Permira partner and co-head of the firm’s industrials sector team.

“In our mind, it was always important to be a clear majority owner and have the control to move this business, which was in a great place, to the next level.”

At the time two local private equity firms held a combined 30 percent stake. Three kibbutzim also held positions in Netafim. After both firms and one of the collectives sold to Permira, Kibbutz Hatzerim, the larger of the two that remained, emerged as the “kingmaker”, holding the equity the firm needed to reach the majority position.

As would be the case throughout, Vogt says, acquiring the additional stake required Permira to address the very specific concerns of a business hoping to expand while retaining an ethos tied to Israel’s unique history. Ultimately, it took 20 trips to the Negev Desert over less than a year to secure the additional stake from the kibbutz, which Vogt described as essentially a family with 400 members.

“They had to be confident that we could bring the right expertise, the right industry understanding and also the right culture to transform it into a modern enterprise, while still protecting the heritage and the interests of the founding kibbutzim,” Vogt says.

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