Fortissimo Capital Fund and Kibbutz Afikim announced the execution of an agreement for the sale of 50% of S.A.E. Afikim (Afimilk) to Livestock Improvement Corp. (LIC).
The enterprise value of Israel-based Afimilk is $140 million, according to Fortissimo's announcement.
LIC is a farmer-owned cooperative based in New Zealand that provides leading-edge genetics and solutions to improve the productivity of dairy farmers. In its own announcement, LIC said it had signed the conditional deal and is seeking shareholder approval for the acquisition.
Afimilk develops, manufactures and markets advanced systems to manage dairy farms and is active in more than 50 countries, the Fortissimo announcement said.
LIC noted that Afimilk is widely regarded as one of the industry-leading producers of milk meters, behavior sensors and farm management software, with particular strength in distribution across Europe and North America.
For fiscal 2019, Afimilk's revenues were $55 million, and its earnings before interest, taxes, depreciation and amortization were $9 million, Fortissimo said.
"After augmenting its management and working closely with the Kibbutz and the company on a focused growth strategy, together we have been able to achieve great success in the market," Fortissimo partner Yochai Hacohen said. "Its new partnership with LIC will enable the company to further enhance its activities."
Arik Schor, chairman of Kibbutz and Afimilk, added, "The fruitful cooperation between Kibbutz Afikim and Fortissimo enabled Afimilk to achieve revenue and profitability growth. Afimilk will continue to operate from its headquarters in Kibbutz Afikim and, together with its new strategic partner, will strengthen its global presence and continue to expand its activities."
Fortissimo is selling its entire 30.8% holding in Afimilk, and Kibbutz is selling 19.2% of the company. Fortissimo invested $5 million in 2010, and a return of approximately 9x on its investment is expected. The transaction is expected to close during the second quarter of 2020.
LIC chair Murray King said the investment will help give LIC access to the data it needs to deliver superior herd improvement services and agricultural technology for New Zealand farmers into the future and will improve access to on-farm technology solutions.
“To do that, it’s vital we keep our world-leading edge in pastoral dairy farming data while broadening access to new information to meet future needs and challenges. The proposed investment in Afimilk will do both," King said. “It will help ensure LIC’s on-going access to pastoral dairy farming data through the increased use of in-line milk meters and animal monitoring systems (such as collars).
“We believe there are likely to be further development opportunities for in-line milk meters to increase LIC’s resilience to the threat of disruption to access to pastoral dairy farming data posed as a result of the move away from traditional herd testing services," King added, noting that the investment would also open LIC's access to data on other farming methods held by Afimilk.
The investment is proposed to be funded primarily through debt provided under LIC’s existing banking facilities, with the balance paid out of its cash reserves. Subject to Afimilk’s performance being in line with current expectations, LIC said it anticipates that the dividends received from Afimilk will be sufficient to meet all interest costs while also likely funding a portion of principal repayment; therefore, the proposed investment is not expected to negatively affect future dividends to LIC shareholders.
King said the LIC board has endorsed the investment, which now requires shareholder approval. The shareholder vote is scheduled for April 7.