Investment Focus: Kibbutz Companies
Kibbutz Companies are the Choice Fruits of
Israel's Mid-Tech Sector
Among the mid-tech sector’s most promising opportunities are kibbutz
companies. Israel's kibbutzim emerged as large-scale collectives in the 1920's
and 30's, often geared to agricultural production. Over the past 30 to 40
years, mechanization, marketing and broadened experience pulled many
kibbutzim into industrial and production sectors but typically not into the high-
tech sector.
The rigid structure, communal dedication, and specialization of labor that
marked the rise of the kibbutz continues to form the cornerstone of their well-
run businesses today. Traditionally insular communities lacking experience with
sophisticated financial tools and outside investment, kibbutz enterprises were
hampered in obtaining the needed capital investment for expansion. It is
precisely in this area that Tene provides unique value.
With its extensive relationships and the experience in the kibbutz industry
sector, Tene is able to win the trust of the relevant players and guide them
through the intricacies of international expansion and capital finance.
Today, the kibbutz industry sector contains over 300 companies; most
considered mid-tech industries. By the end of 2005, kibbutz companies posted
a four-year CAGR approaching 12%, with annual export growth exceeding 18%
(see below). In 2005, exports made up 60% of kibbutz industry revenues.
Israel's Mid-Tech Sector
Among the mid-tech sector’s most promising opportunities are kibbutz
companies. Israel's kibbutzim emerged as large-scale collectives in the 1920's
and 30's, often geared to agricultural production. Over the past 30 to 40
years, mechanization, marketing and broadened experience pulled many
kibbutzim into industrial and production sectors but typically not into the high-
tech sector.
The rigid structure, communal dedication, and specialization of labor that
marked the rise of the kibbutz continues to form the cornerstone of their well-
run businesses today. Traditionally insular communities lacking experience with
sophisticated financial tools and outside investment, kibbutz enterprises were
hampered in obtaining the needed capital investment for expansion. It is
precisely in this area that Tene provides unique value.
With its extensive relationships and the experience in the kibbutz industry
sector, Tene is able to win the trust of the relevant players and guide them
through the intricacies of international expansion and capital finance.
Today, the kibbutz industry sector contains over 300 companies; most
considered mid-tech industries. By the end of 2005, kibbutz companies posted
a four-year CAGR approaching 12%, with annual export growth exceeding 18%
(see below). In 2005, exports made up 60% of kibbutz industry revenues.
The mini-industrial revolution of the kibbutzim a generation ago was the main
source of the US$6 billion kibbutzim financial crisis that emerged at the end of the
1980s. The Israeli Government, major Israeli banks, kibbutz movements and the
kibbutzim themselves agreed to enter into a comprehensive creditor's
arrangement (the “Arrangement”), based on reorganization plans of the
kibbutzim and their entities. The successful combination of financial restructuring
and structural reforms paved the road for the emergence of the kibbutz industry
as a segment ripe with many investment opportunities now targeted by the
Fund.
During the years 1992-2000, Tene's Managing Principal Dr. Ariel Halperin served
as the trustee on behalf of the Arrangement's participants and led the largest
and most sophisticated creditors arrangement ever created in Israel. His
knowledge and understanding of the kibbutz, in general, and the kibbutz
industry, in particular, are unmatched and create a source of exclusive deal flow
for the Fund.
Investing in the kibbutz industry sector today means investing in diversified,
mature enterprises that operate in established export-oriented markets. These
companies have demonstrated an ability to generate revenue and have achieved
consistent sales growth over many years. In 2005, the sector employed over
30,000 people and accounted for US$6 billion in sales, out of which US$3.6 billion
were from exports. The industry benefits from the rigid structure and communal
dedication that characterizes the social construction of the kibbutz movement.
The industry also benefits from tax and capital investment incentives; most plants
are located in developmental zones and are therefore entitled to such benefits.
The low level of investment in the kibbutz industry sector during the mid-1990s
was due to the lack of economic incentives in the wake of the earlier financial
restructuring.
At the turn of the century, this climate changed rapidly with the completion of the
financial restructuring and with the process of privatization of the kibbutz
communities. Privatization brought with it new considerations for kibbutzim, for
example:
Privatization revealed the need and the demand for external investments and
expertise. Although 70 kibbutz companies have external partners -- 20 of which
are public companies registered on the Tel-Aviv Stock Exchange -- there remains
an equity gap of external investment.
source of the US$6 billion kibbutzim financial crisis that emerged at the end of the
1980s. The Israeli Government, major Israeli banks, kibbutz movements and the
kibbutzim themselves agreed to enter into a comprehensive creditor's
arrangement (the “Arrangement”), based on reorganization plans of the
kibbutzim and their entities. The successful combination of financial restructuring
and structural reforms paved the road for the emergence of the kibbutz industry
as a segment ripe with many investment opportunities now targeted by the
Fund.
During the years 1992-2000, Tene's Managing Principal Dr. Ariel Halperin served
as the trustee on behalf of the Arrangement's participants and led the largest
and most sophisticated creditors arrangement ever created in Israel. His
knowledge and understanding of the kibbutz, in general, and the kibbutz
industry, in particular, are unmatched and create a source of exclusive deal flow
for the Fund.
Investing in the kibbutz industry sector today means investing in diversified,
mature enterprises that operate in established export-oriented markets. These
companies have demonstrated an ability to generate revenue and have achieved
consistent sales growth over many years. In 2005, the sector employed over
30,000 people and accounted for US$6 billion in sales, out of which US$3.6 billion
were from exports. The industry benefits from the rigid structure and communal
dedication that characterizes the social construction of the kibbutz movement.
The industry also benefits from tax and capital investment incentives; most plants
are located in developmental zones and are therefore entitled to such benefits.
The low level of investment in the kibbutz industry sector during the mid-1990s
was due to the lack of economic incentives in the wake of the earlier financial
restructuring.
At the turn of the century, this climate changed rapidly with the completion of the
financial restructuring and with the process of privatization of the kibbutz
communities. Privatization brought with it new considerations for kibbutzim, for
example:
- Historically, the business and the kibbutz were one entity. With
privatization, the kibbutz becomes the majority shareholder. - The move to a privatized business requires the restructuring of external
debt. Special regulations were promulgated to provide a tax exemption to
kibbutzim to use the proceeds from external investments to cover these
debts. - Under a privatized business, the kibbutz often becomes the lessor for real
estate used by the business. Additionally, the kibbutz receives fees for
utilities and infrastructure services, including water, electricity, etc. - Historically there was no need for a pension program, as the costs of
kibbutz retirees were covered by the succeeding generation of workers.
Under a privatized business, without a specific scheme to close the funding
gap, retired workers would not have incomes.
Privatization revealed the need and the demand for external investments and
expertise. Although 70 kibbutz companies have external partners -- 20 of which
are public companies registered on the Tel-Aviv Stock Exchange -- there remains
an equity gap of external investment.
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| Find out more about Tene's Investment Focus Israel: Fertile Conditions for Investment Mid-Tech Companies: Israel's Economic Staple |
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