The last decade has probably been the best the kibbutzim have ever had - at least financially.
In the last few weeks alone, plastic panels manufacturer Plazit-Polygal Plastics Industries was sold to US-based Plaskolite for about $210 million. This is the second exit for Kibbutz Gazit, which a few weeks ago, together with Kibbutz Hama'apil, sold meal container manufacturer MCP Performance Plastic to Danish food packaging company Faerch, based on a NIS 220 million valuation.
Other kibbutz industry deals have been closed over the past three months: Kibbutz Metzer took NIS 150 million on the sale of its SP Metzerplas plumbing division to Inrom Construction Industries, while Haogenplast of Kibbutz HaOgen, which develops and manufactures PVC products, was sold to the German concern KAP for NIS 105 million.
These join the dozens of deals made by Israel’s kibbutzim in recent years; a decade in which the kibbutzim brought outside investors into their industries, sold their holdings, began trading on stock exchanges around the world; and even became investors themselves in startups and other kibbutz industries.
For example, a few months ago Kibbutz Mishmar HaEmek, considered one of the richest kibbutzim, purchased a quarter of Ricor, a cryogenics company by Kibbutz Ein Harod Ihud, at a NIS 350-400 million valuation. In a previous deal, Mishmar HaEmek purchased about a quarter of irrigation products company Bermad from Kibbutz Evron and Kibbutz Saar, at about NIS 450 million company value.
Serial deal-making seems to be the thing, especially over the last five years, and kibbutz industries are the hottest thing on the market. A CofaceBdi analysis on the kibbutz industry shows that in 2021, kibbutz industries will generate about NIS 50.3 billion in revenue, up 4.6% from NIS 48.1 billion revenue in 2020, which was up 2.1% from 2019. Revenue per employee is estimated at NIS 1.5 million, compared with NIS 1.2 million in the manufacturing sector as a whole. The volume of export sales for the kibbutz industry currently constitutes over 50%-55% of total activity, compared with about 40% for Israel’s industrial sector overall.
So how and when, did the kibbutz industry become so sexy? What has happened in the last decade to cause the kibbutz industry to explode, and is this just the beginning, or the beginning of the end?
"This is a combination of several things," says a source who works with kibbutz industry. "First, privatization within the kibbutz movement; second, general market prosperity; and third, a desire to profit from jointly-held assets, so they can, among other things, develop infrastructure on the kibbutz, or invest in other kibbutz branches."
One businessman who has followed the sector’s decade of transformation closely is Ofer Yanai, founder and controlling shareholder of Nofar Energy, which installs rooftop solar projects and floating solar projects on water reservoirs. When Yanai first tried to partner with kibbutzim, he was met with a great deal of hesitation. That was in 2013, just at the end of the "Kibbutz Arrangement", in which billions of shekels in debts were written off, and almost every kibbutz was in financial crisis. "The kibbutzim were used to receiving passive rental income. I had to convince them to enter partnerships where they would invest money, so in a sense it was 30% negotiation and 70% psychological treatment," Yanai recalled.
After overcoming the first hurdle, when he convinced Kibbutz Beit Alfa and Kibbutz Lahav to become partners, other kibbutzim followed. Nofar currently has solar installations with about 150 kibbutzim. "Today the kibbutzim are active players, business no longer scares them the way it did in 2013. The ‘Arrangement’ ended, and they realized they were in a new reality that required them to upgrade their management game. Today they understand that a business needs to be profitable and serve its shareholders. "
"We no longer live in the era when kibbutzim would sell their industries for nothing, or bring in partners because they had no choice," says Kibbutz Movement Secretary-General Nir Meir, about the collectivist movement’s change in perception since the economic crisis. "As of the past 10 years, kibbutzim no longer sell holdings because the bank has forced them to. That’s over," says Adv. Sarit Molcho, who conducts many kibbutz industry transactions, including the Hama'apil deal. "Also, almost no kibbutz is in economic trouble these days. Selling a kibbutz industry isn’t done out of economic need, but from a desire to realize value."
"The kibbutz industry today is no longer what everyone thinks," emphasizes Kibbutz Industries Association chairman Yonatan Bassi. "It’s part of a kibbutz's economy and a sale occurs only when there’s a reason for it. In one instance, the kibbutz members may want to realize their holdings in order to receive a bonus from the collective. In another case, an industrial enterprise may need cash and concludes it can realize a portion of its shares by bringing in an investor. These processes happen, I think, no more today than in the past. But, if 15 years ago, they required ideological clarification, today they’ve become part of the normal economy. "
Eran Ben-Shushan, co-manager at Dolphin 1 Investment and a member of the economic management committee at his kibbutz, Ein Carmel, attributes this economic success to, among other things, "rising raw material prices, and a rise in plastic products industry [the industry that comprises the bulk of the kibbutz industry sector - H.M.]. I say, the stars aligned for the kibbutz industry. "
The Kibbutz Arrangement: Lessons learned
A brief history: Most kibbutz factories were established in the 1970s and 1980s, some by several kibbutzim in partnership. They relied heavily on a kibbutz member labor force, and developed the industry at a low level of equity which forced them to take loans. Eventually, these loans turned out to be a disaster for the kibbutzim, as interest rates ballooned due to the hyperinflation of the day, and many kibbutzim were saddled with huge debts. In 1989 and 1996, the government, the banks, and the kibbutz movement signed two arrangement agreements to rescue the kibbutzim from the debt crisis. In 2010, the arrangements process was completed, and NIS 19-20 billion in debt written off.
According to kibbutz industry source, the crisis caused a profound structural change. "The kibbutzim understood that they had to rely on themselves. The regional systems that gave them support disintegrated financially, and each kibbutz found itself standing on its own. This created a sense of greater responsibility and a more successful business system."
"Over the last 15 years, kibbutzim have sold when the opportunity came along, and not because they’ve had to. That’s very different from the wave of sales of the 1990s," says Meir. "They no longer sell their collective industries for ‘a mess of pottage’ but only when they want to. No one will ever forget the moral of that story."
There are plenty of examples where kibbutzim welcomed any investor. For example, Kibbutz Beit Kama, which owned 35% of the biopharmaceutical company Kamada Pharmaceuticals, sold its shares in 1999 to the company's founder Ralf Hahn and another investor for $2.5 million. Today, Kamada is traded at a market cap of about NIS 750 million.
An even more extreme case is Kibbutz Netiv HaLamed-Heh, which founded Tana Industries that owns the Tami 4 brand. In 1998, Shmuel (Samuel) Vlodinger, then the controlling shareholder of the Kazuu Investment Fund, bought 18% of Tana shares for $1 million. Later, in 2009, Tana was sold to Strauss for $75 million, and Vlodinger recorded a $13 million exit on his share.
And one of the most successful stories in the life of the kibbutz industry is Maytronics, a company that manufactures robots for swimming pools, owned by Kibbutz Yizre'el. In 2012, the kibbutz received a purchase offer from US-based swimming pool equipment giant Hayward, at NIS 345 million company value, but it was rejected at the kibbutz assembly.
In retrospect, the decision made at that kibbutz meeting was brilliant. Maytronics’ current market value is over NIS 7 billion. In 2017 and 2020, the kibbutz sold only about 10% of shares for a total consideration of NIS 235 million - higher than the amount it was supposed to receive for the sale of all controlling shares in 2012.
A source acquainted closely with the kibbutz industry believes that it is impossible to separate changes in the industries from the privatization processes affecting the kibbutz model a whole. "As the kibbutz got deeper into privatization, the question constantly came up regarding funding to support the community over time - is it right for a community of 1,000 people to rely on one business? This motivated a process in which kibbutzim divested themselves of shareholdings, diverted resources to new businesses, or used them to benefit members. I believe this phenomenon will continue. It’s estimated that, over time, kibbutzim will decrease their shareholdings, disperse resources more widely, reinforce their members’ sense of security, and create an economic system that makes lots of sense."
Although many kibbutzim have abandoned the cooperative model - partly out of an understanding that it damages productivity - some non-privatized kibbutzim have actually produced several of the leading kibbutz industries: Kibbutz Baram, which owns Alchem Medical, a company that manufactures disposable medical products; Kibbutz Sasa owns vehicle protection company Plasan Sasa; Mishmar HaEmek and Gilad have Tama, which produces packaging products for agriculture; Kibbutz Yizre'el, which controls Maytronics that trades at NIS 7.5 billion market capitalization; Maagan Michael that who owns Plasson (plastic pipe fittings); Kibbutz Ein Harod Ihud, which holds cryogenic company Ricor; Nir Oz ,which owns Nirlat (house paint); Kibbutz Hatzerim that has drip irrigation systems; Kibbutz Beeri with Beeri Printers; Kibbutz Gan Shmuel with the Primor beverage company.
"You can see a correlation between successful kibbutzim and a successful industry that holds the community together," the source says. "As the years go by, those same kibbutzim can take advantage of their success, and distribute dividends that provide social security for members, while developing additional businesses over time that stand on the previous foundation."
On the other hand, there are kibbutzim which have undergone very comprehensive changes and have been privatized, but still control thriving industries: Kibbutz Shamir (Shamir Optical Industry, developer and producer of high-performance lenses), Kibbutz Dalia and Kibbutz Ramot Menashe (Arad, which develops water metering solutions), Kibbutz Kfar Aza (manufacturer of concentrates and compounds for the plastics industry); Kibbutz Ga'aton (T.A.G. Medical Products) and Kfar Masaryk (Ducart, cardboard packaging).
And there are kibbutzim which, along with undergoing privatization, sold their industries: Kibbutz Lohamei HaGeta'ot sold Tivall; Kibbutz Yiftach and Kibbutz Magal sold their share in Netafim, (where they were partners with Kibbutz Hatzerim); Kibbutz Gvat sold Plastro Gvat, and Kibbutz Kfar Hanassi sold its faucet factory. "We see this phenomenon in a lot of kibbutzim," says the same source. "It's an ongoing process, and the thought is that over time it just gets more and more expensive."
"The kibbutzim which made exits are actually the ones that are less rich," says Ben-Shushan of Kibbutz Ein Carmel. "There are kibbutzim whose factories are operating at an all-time high but, on the other hand, their older population wants to cash out and buy property for their children, because the kibbutz is no longer building housing for them.
"Conversely, the rich kibbutzim don’t see a need for an exit. They have a guaranteed cash flow from the factory, the kibbutz builds them housing, they have economic well-being, the kibbutz takes them on vacations and finances their children’s studies. They have no reason to make an exit. Therefore, exits will continue at medium-sized industries, at kibbutzim which are in good condition but aren’t rich, and will take advantage of the momentum for their industry, which is at an all-time high."
According to CofaceBdi, the plastics and rubber industry accounts for the largest share in the kibbutz industry, about 28%. It is followed by machinery and industrial equipment (19%), food and agriculture (13%), technology and electronics (11%), paper and cardboard (7%), pharmaceuticals and chemicals (6%), services (5%), construction inputs (4%), The textile industries, wood products and optics and glass each make up about 2%, and other fields make up 1%. About 60% of kibbutz industry factories - 140 out of 235 - are located in the northern region. A review of the business risk index for the kibbutz industry indicates a low level of business risk, compared to the entire economy.
When an exit divides the kibbutz
The large number of kibbutz industry transactions has created a "nuoveau riche" stratum among kibbutzniks. And where there’s money, there are fights over money. The result is that quite a few kibbutzim have found themselves in internal conflicts over how exit funds would be distributed among members.
One known dispute took place at Kibbutz Sdot Yam. In 2014, the kibbutz became rich by bringing partners into its countertop industry, Caesarstone, which in its heyday was traded on Nasdaq at a $2.5 billion market cap. This ensured the members' economic future, but also divided the kibbutz into camps over, among other things, the number of shares held by the kibbutz. Leading one camp was Maxim Ohana, then-chairman of Caesarstone, who was raised on the kibbutz as an "outside child", [a boarding school student, not a kibbutz member]. The second camp, representing the kibbutz founding families, was handled by Amir Rotem, then-chairman of the kibbutz's economic council, and the former CEO of Caesarstone.
In many cases, there is a built-in conflict between young and old: while the former are interested in preserving their economic future, the latter are often interested in getting cash in hand, so they can help their children. There are also kibbutznik heirs, and former kibbutz members - with everyone convinced that they, too, deserve a share. "Every kibbutz conducts these proceedings differently," says Adv. Miki Barnea, who has worked on kibbutz industry transactions. "Sometimes, these decisions include people who are not kibbutz members, for example, heirs or ex-members." The interesting thing, he says, "is to stand before the members and explain to them, in a simple manner, whether or not to sell. The investing partner wants to go one way, they want another, and they have to decide whether to participate, or not. In these situations, you feel the humanity. "
"Many times the older population wants to cash out, both to develop the community and to help their children," says Itzik Bader, a member of Kibbutz Givat Haim Meuhad, who for 20 years served as chairman of the Granot Group, an agricultural-industrial complex of 20 factories and corporations owned by 43 kibbutzim and cooperative moshavim. "There was a time when kibbutz industries went public. Today that’s less sexy, and the talk is all about bringing in partners. Every kibbutz is examining its own possibilities. "
According to Bader, this is an integral part of the changes that the kibbutzim and their members are undergoing. "More responsibility for livelihood has been passed on to members, most of whom work off the kibbutz. Conversely, non-members come to work on the kibbutz. When the industry develops, with export markets, it requires bringing in partners, and sometimes it suits the kibbutz and its members to make an exit. "
How much does this affect the social fabric?
"Naturally, when a large sum of money comes in, there are discussions about different priorities, so one kibbutz’s situation differs from another. In the end, most kibbutzim have made sound decisions that see to the needs of the society, community development, and are able to provide handsome amounts to each member according to seniority. It's only right that in these cases, members should receive a nice sum, both to make life more comfortable, and also so that they can help their children."
"This is definitely a very complex situation for kibbutz members," says Ben-Shushan. "Many kibbutzim decide to put the money in a fund, rather than immediately distributing all of it to members. Instead, they are given a lump sum, not life-changing but 'nice', and the rest is deposited. If you give a kibbutz member a million shekels, it can 'disappear'. The grandchildren suddenly 'take notice', and very quickly nothing is left. So, they pay a one-time dividend and deposit the rest".
"There are arguments, as with all shareholders," says Kibbutz Industries Association chairman Bassi, "but if the kibbutz is structured well enough, then the discussion process will be done accordingly. If not, all sorts of personal considerations come in. If I look at the Israeli economy, it also exists in family-owned companies. That’s why many companies are moving towards going public companies, to avoid controversy. Take Osem, for example. They [the Propper family] sold shares to Nestle so that each shareholder could do whatever they wanted with the money. The kibbutz it is very similar: there are people who take the industry lightly while for others it’s net income. The problem begins when the decision-making process is disorganized which leads to clashes. "
"This process is in line with the general trend in recent years of ending the kibbutz model," says a source who has done business with kibbutzim. "In the past, they would appoint a committee to sell the factory and there were old-timers who feared that once they lost control of the factory, they would lose the main thing that protected them. But this too, has passed. These days, their solidarity and communality are more on the social level and not around assets.
"The kibbutzim understand that it is impossible to go against all trends. They see other kibbutzim and follow in their footsteps. They’re investing their own money in industrial companies, which also allows them to take in more members. Take Afikim: after the exit they made with Afimilk [ the kibbutz made a partial exit and sold 25% of its holdings to partner Fortissimo Capital Fund, for $40 million. - H.M.], they accepted quite a few new members."
Old-timers get more
One example of how the kibbutz ethos has changed in relation to sale transactions is Amiad Water Systems, a water treatment and filtration solutions company founded by Kibbutz Amiad. The kibbutz, located in the Upper Galilee, was established in 1946 by a group of Palmach veterans, Kvutzat HaHolshim, and Amiad Water Systems was set up by these members almost 60 years ago. The decision to sell the company was made mainly because of the socio-economic changes at the kibbutz in the course of a decade of privatization, and for absorption of new families.
The deal was made in April 2020; since then, FIMI has become the controlling shareholder, having increased its holdings in the company from 9% to 42%. Up until then, Amiad was controlled by Amiad, Arkal Plastic Products of Kibbutz Beit Zera, and BERMAD, owned by Kibbutz Evron and Kibbutz Saar. At the same time, FIMI’s increased share reduced Amiad's holdings to just 33%, in exchange for $22 million investment in the company by FIMI, and a $2.6 million immediate cash payout to the kibbutz members. This enabled each family on Amiad to receive tens of thousands of shekels, according to pre-determined seniority ranking.
"We were looking for a way to associate properties," says Nir Ben-Zvi, chairman of Agudat HaHolshim, the shareholder association of the veteran Amiad members, referring to assignment of once-communal properties to individual owners, a process that every privatized kibbutz must undergo. "So, in the first stage, the members received the apartments they lived in. The next step was to associate assets. We wanted to absorb new families as kibbutz members without having a non-members versus members situation, because from experience of other kibbutzim, this creates a social problem. To do this, we had to separate the property established by the veteran members - Amiad Water Systems, the kibbutz's main business - from current income-generating branches like agriculture. We transferred the rights from the kibbutz to Agudat HaHolshim, and those rights were distributed according to levels of seniority." The distribution method he explains as follows: "We made a decision not to create too large gaps between young and old. The young people understood that in the end, those receiving more are their parents."
For Amiad members, introducing a foreign entity into the kibbutz's factory was nothing new. Years ago, they had brought Gaon Holdings in as a partner. At some point, the company sold shares to a foreign fund, which later sold its holdings to FIMI, which, as mentioned, gradually gained control, and even transferred Amiad from trading on the AIM in London to the TASE.
In 2012, a decision was made to block trading for five years so that the kibbutz could maintain control, but members were allowed to sell shares among themselves as well as to the kibbutz. Indeed, several kibbutz members took advantage of this opportunity. Eventually, the kibbutz realized that for Amiad to move to the next level, and push the company forward, control would have to be relinquished in exchange bringing in a significant partner. As mentioned, a year and a half ago it happened. For the meanwhile, says Ben-Zvi, we are satisfied.
In the past, this sort of event would not have gone quietly. It would probably have stood members on their hind legs, perhaps even created factions. But lots of water has flowed under the bridge since kibbutzniks realized that management is not necessarily their strong suit and if they do not want a second kibbutz arrangement to happen, perhaps the right thing to do might be to let an outside professional run their company.
"They realized they had exhausted what they could do on their own," Molcho says. "A lot of kibbutzim are looking for partners who will break new ground for them. You see more partnerships whose strategic goals, rather than to make exits, are to ensure pensions."
The return of mutual assurance
Although Kibbutz Amiad no longer controls the factory it established, it is still located on the kibbutz grounds - a unique characteristic of the kibbutz industry. The factory’s presence means that the connection between the industry and the place itself is maintained, even after the kibbutz has separated from it. On many kibbutzim, each morning the founders enjoy seeing the factory they established, while the kibbutz benefits from rent, and the dining hall sells meals to factory workers.
Whether exited, cooperative, or privatized, Meir, Secretary General of the Kibbutz Movement insists there is a distinguishing characteristic of kibbutzim past and present: the principle of mutual assurance. Within the kibbutz movement framework, Meir established the Sela Fund for Mutual Assurance, which receives a certain percentage of the kibbutz transactions in order to ensure the future of kibbutz pensioners. "When a kibbutz makes an exit," says Meir, "we request a percentage of the profits for the fund. It’s been operating for 8-9 years, and every pensioner has received from it. The fund was based on NIS 5 million from Caesarstone, after which funds came in from the Ma’anit deal. It isn’t mandatory, but every time we present the need, we’re generally heard. The apex was when Kibbutz Yizre'el decided not to sell Maytronics, but made the donation anyway. Ostensibly, the kibbutz is divesting its assets and unofficially bringing back collective assurance."
Major deals for the last two years October 2021
- The kibbutz: Gazit
- The deal: Plastic panels manufacturer Plazit-Polygal Plastics Industries, controlled by Gazit (80%), is sold to US-based Plaskolite.
- Amount: $210 million
- The kibbutz: Metzer
- The deal: The home plumbing systems division of irrigation systems manufacturer SP Metzerplas sold to Inrom Construction Industries Group.
- The amount: NIS 150 million
- The kibbutzim: HaMa'apil and Gazit
- The deal: Meal container manufacturer MCP Performance Plastic sold to Danish food packaging company Faerch.
- The amount: NIS 170 million
- The kibbutz: HaOgen
- The deal: A 60% share in Haogenplast, which develops and manufactures P.V.C sheets, sold to German company KAP.
- The amount: NIS 63 million
- The kibbutz: Sde Eliyahu
- The deal: Completed the sale of S.D.A. Spice, manufacturer of dried fruits, seasonings and spices, to Turpaz Industries.
- The amount: About NIS 30 million
- The kibbutz: HaZorea
- The deal: Sale of 18.63% of Plastopil, producer of thin, flexible packaging for the food industry, to Ronen Elad.
- The amount: NIS 15 million
- The kibbutz: Gan Shmuel
- The deal: Leumi Partners invests in vegan food developer and producer Vgarden in exchange for shares
- The amount: NIS 55 million
- The kibbutz: Ga'aton
- The deal: TENE Investment Funds, the controlling shareholder in medical device company T.A.G. Medical Products, founded by Ga'aton, acquired an additional 9% from the kibbutz.
- The amount: Tens of millions of shekels at about a NIS 500 million valuation.
- The kibbutz: Mishmar HaEmek
- The deal: TENE Investment Funds sold Mishmar HaEmek a 25% share of Ricor, which is controlled by Kibbutz Ein Harod Ihud.
- The amount: NIS 90 million
- The kibbutzim: Nir Oz and Nirim
- The deal: The sale of a minority stake (about 37.8%) in paint company Nirlat to controlling shareholder Inrom Construction Industries Group.
- The amount: NIS 266 million in Inrom shares.
- The kibbutzim: Ein Harod Ihud and Yizre'el
- The deal: Ein Harod Ihud's Ricor acquires, together with Yizre'el Holdings, Netzer Precision Position Sensors from the Wertheimer and Netzer families.
- The amount: An estimated NIS 45 million.
- The kibbutz: Dalia
- The deal: A 12% share in water metering solutions developer Arad sold to institutional entities.
- The amount: NIS 156 million
- The kibbutz: Amiad
- The deal: FIMI Opportunity Funds has completed its takeover of Amiad Water Systems and increased its share from 18% to 42%.
- The amount: A $22 million investment in the company and another $3 million payment to the kibbutz.
Published by Globes, Israel business news - en.globes.co.il - on October 24, 2021.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2021.