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November 30, 2012 3:23 pm

Permira-backed Netafim seeks China partner to grab share of irrigation market

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Netafim, a private Israeli drip irrigation solution provider majority-owned by UK’s Permira, is on the lookout for partners that can help it reach 10% of the drip irrigation market in China within three years, Alon Teichtal, managing director of Netafim’s Asia operations, said. An uptick in demand in China in recent years has been partially driven by the Chinese government’s increasing attention and budget allocation to companies offering water solutions, Teichtal said.

Chinese stated-owned fertilizer companies could be interested in looking into Netafim, industry sources said, with one noting that some SOEs could be going over the details of a potential deal with Netafim.

Netafim has marked China, along with the US and India, as an area for growth. To reach its goal in China, it would consider commercial and marketing partnerships, as well as financial partnerships, with Chinese companies, Teichtal said.

Management is not working with financial advisors as it has Teichtal along with Netafim’s managing director of China operations, and Permira, which has an office in Hong Kong, to assist. It would consider approaches from financial advisors representing potential partners.

Suitable partners could be fertilizer companies, said Teichtal, noting that many are approaching Netafim and other companies similar to Netafim. He explained that the next generation in fertilization is water soluble solutions and that most fertilizer companies will need a drip irrigation system such as Netafim’s, which can release fertilizer in addition to water.

ChemChina and SinoChem are some of the large fertilizer companies in China, Teichtal said.

Sinochem confirmed it is in talks with several technology-oriented agriculture service supplying companies but declined to comment on specific target like Netafim, said a source close to the company.

Sino-Agri Holdings, the state-owned Chinese agrochemical products and fertilizer company, has been seeking opportunities to enter new agro businesses, with drip irrigation being one option to consider, a company source said. It is not in talks with Netafim but would be interested to look at the company. Sino-Agri generated revenues of over CNY 40bn in 2011, and in a recent mergermarket report revealed it was eyeing a CNY 8bn listing to raise funds for acquisitions in new agribusiness areas.

Among other partners Netafim could consider are local crop enterprises and water solution companies, Teichtal said.

Netafim originally entered the market in China in 1994, which proved to be too early, said Teichtal. In the 2000s it partnered with a Chinese company and built two plants which it decided to shut down in 2008 due to problems with its relationship with the partner. The company has since been a marketing company in China but plans to open a new plant on its own in 2014, he said.

Permira acquired 61% of Tel-Aviv based Netafim in late 2011 for a reported USD 870m. Kibbutz Hatzerim owns 33% while Kibbutz Magal holds the rest of the company. In 2010, Netafim recorded sales of over USD 600m (ILS 2.2bn).

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