Permira to partner with kibbutzim on deal

Permira, for the first time, will include two kibbutzim, traditional agricultural communities in Israel, as co-investors on an investment in a farming technology company.

UK buyout house Permira is set to make an agricultural-related investment that will include some unusual co-investors — two Israeli kibbutzim, traditionally farming communities, that will apply their agricultural knowledge to the investment.
 
The firm is buying a 61 percent stake in $1 billion business Netafim, which supplies crop-watering equipment. The firm would not disclose the exact value or debt to equity ratio of the transaction.
 
Netafim has developed efficient water passageways for crop irrigation that can increase crop yield by 50 percent and reduce water consumption by 40 percent. The company has experienced double digit growth in the last 10 years and has a presence in more than 100 countries. Permira hopes expand the business further into emerging markets, and will continue to invest in the food chain and production sector, according to the firm.
 
Kibbutz Hatzerim and Kibbutz Magal will join Permira in the investment, the first time the firm has ever partnered with kibbutzim on a deal.
 
Permira made the investment from its €9.6 billion Permira IV fund, which started investing in 2006. The fund has roughly €1 billion left to invest and is about 75 to 80 percent deployed, according to someone close to the firm.
 
The firm is also in the process of selling animal food specialist Provimi to Cargill for about $2.1 billion, generating a 2.3x return of its initial investment.
 
Permira launched its new buyout fund this month that has a target size of €6.5 billion, according to a person with knowledge of the matter. Private Equity International confirmed that under the terms of the deal, those that commit either before the fund’s first close or more than €200 million to the fund at anytime will receive a 5 percent discount on the firm’s annual management fee. The fund has an investment life of five to six years with an annual management fee of 1.5 percent of the fund.
 
The €6.5 billion target of the fund is modest compared to the current fund’s size. However, having reduced Permira IV from €11.1 billion to €9.6 billion in response to the global market downturn in 2008, it has reduced market expectations. One LP said to Private Equity International in June this year: “It’s clearly a very different environment now compared to 2006, and you have to be realistic about fund sizes. They believe it’s a size appropriate for the market opportunity.”
 
Permira declined to comment on the matter. The firm’s decision to pursue a smaller fund size comes when many firms are offering discounts to LPs due to market conditions and amidst calls for more transparency and management fee scrutiny.