Milk and Honey: Kiwi farmers set for landmark investment into Israeli company

One of New Zealand’s leading agricultural companies, Livestock Improvement Corporation Ltd (LIC), looks set to make a groundbreaking NZ$108m investment to acquire a 50% shareholding in Israel’s leading dairy technology company, Afimilk. This transaction would be the largest ever investment into an Israeli company by a New Zealand Corporate, surpassing the NZ$100m acquisition by Israeli natural flavours company Frutarom into New Zealand based Taura fruit processors in 2015.

Competition to acquire an interest in Afimilk is understood to have been strong but it is likely that Kibbutz Afikim, Afimilk’s main shareholder, preferred a co-operative partner, like New Zealand’s LIC, with a similar ‘cultural fit’. The transaction is subject to a shareholder vote but is expected to be widely supported. The deal involves LIC acquiring a 30% stake in Afimilk from the private equity fund Fortissimo and acquiring another 20% from Kibbutz Afikim to create a balanced shareholding between LIC and Kibbutz Afikim.

New Zealand agriculture has a long association with Israeli agri- and dairy-tech. Israeli irrigation systems, vegetable seeds, animal genetics, and water filtration systems are relied on throughout New Zealand. It is not surprising to see the consolidation of these longstanding relationships and shared expertise in the form of the LIC / Afimilk deal. Arama Kukatai, who works on similar deals between Israel and New Zealand in his company, Finistere, told The Israel Institute of New Zealand that the LIC-Afimilk partnership might be the largest, but it isn’t the first.

“Israel and New Zealand both have long, distinguished histories as innovators in the dairy and agriculture/agritech sectors. Indeed, SCR one of Afimilk’s Israeli counterparts was acquired by Allflex, which originated in Palmerston North New Zealand, in 2015. The potential for expanding on this strong history of partnership in a period where agrifood innovation investment is at an all-time high is considerable, and it’s exciting to see this latest development with leading firms in Israel and New Zealand. If consummated this deal would represent a major milestone in the NZ-Israel agtech relationship, but also bring together a strong fit around hardware and software solutions in the livestock sector.”Arama Kukatai

Israel is a global leader in dairying and its cows produce some of the highest quality and largest outputs per head in the world. These record milk outputs are from the combination of animal genetics and data gathering, analysis and comparison technologies such as Afimilk’s which help farmers keep cows happy. Happy, healthy cows produce more and better milk and they produce a kinder product.

Afimilk has a reputation for excellent innovation and commercialisation of new products. It has 200 distributors around the world balancing revenues and currencies, including the first dairy farm in Papua New Guinea. A classic Israeli agri-innovation success story, Afimilk began on Kibbutz Afikim, on the edge of the sea of Galilee, in 1977. It makes in-line milking technology with sensors to monitor milk purity, health, and type collated for each cow to enable comparisons across individual cows and herds.

Afimilk’s technology and data capabilities could pave the way to positively impact LIC’s genetics strategy. It is possible that access to cow-level data could be an important feature of the deal’s attractiveness to LIC. Data on animal health, genetics, milk typing, product purity, and functional qualities could also help dairy farmers with the increasingly important task of balancing cow health with environmental and regulatory obligations. The transaction will likely help reinforce NZ and Israeli leadership in the global dairy sector by assisting LIC to keep its world-leading edge in pastoral dairy farming data while broadening access to new information to meet future needs and challenges facing New Zealand dairy farmers. Johnny Weiss, Managing Director of the Trans-Tasman Business Circle, welcomed the news saying

“New Zealand’s proud innovation culture can flourish with connections with other advanced economies such as Israel. We are proud of LIC’s participation on our 2018 Agritech delegation to Israel. This deal is an example of a sector in which both New Zealand and Israel have strong, synergistic, and global capability. The partnership will enhance this.”Johnny Weiss

The NZ government has emphasised pastoral farming’s need to use technology to its fullest to meet environmental compliances in new regulatory regimes. Increasingly, consumers are also looking to know more about the milk they buy and they are increasingly prepared to pay a premium for milk which they know more about. A good example of this is the successful A2 milk product.

Livestock Improvement Corporation is a co-operative owned by more than 10,000 farmers across New Zealand with annual revenues of circa NZ$250m. It has been in business for more than 110 years providing animal genetics and livestock testing services to its stakeholders. It also sells its technology and bovine genetics around the world. It has a formidable dairy farm data and technology business in its own right.

Wayne McNee, the CEO of LIC, and LIC’s Chairman, Murray King, have overseen that company’s significant improvement in profitability over their respective tenures. The investment into Afimilk is expected to deliver the LIC co-operative an ownership stake in world-leading dairying software, advanced sensors, and a global sales network. McNee has a life science background and before joining LIC and leading it to record profitability was CEO of Pharmac, New Zealand’s government drug purchasing entity and then Director General of the NZ Government’s Ministry of Primary Industries. It is understood that he has spent a significant amount of time gaining knowledge of the Israeli technology and Agriculture landscape with his leadership team, his board and key Israel M&A advisors who have worked alongside LIC on this transaction. Mr McNee believes the deal is more than just a financial opportunity. He gave an interview from Israel, saying

“…it is a significant investment for LIC to invest in Afimilk. It is the largest investment we will have made. But one of the great things about this is that it is a partnership so we are going to be 50-50 with the local kibbutz here. We will have shared control of the company, shared control of the destiny, and a long-term strategic view of that investment. This is an opportunity from the kibbutz perspective to have a strategic partner for the long-term rather than just a financial investor…”Wayne McNee

Mr King, Afimilk CEO, Yuval Rachmilevitz, and Head of Marketing and Products at LIC, Mike Wilson, also gave interviews discussing the deal.

Israel is increasingly recognised as a global powerhouse in technology and innovation. Last year it had over US$9.9b billion worth of company exits. Israel has free trade agreements with America and also with Europe and an innovation agreement with Australia which alone is estimated to be worth $2b annually.

Over the last few years other notable transactions between Israel and New Zealand’s food and agriculture have been picking up. In 2015 Kiwi M&A advisor to the agri- and food-tech industries, Ira Bing, advised the $7b Israeli natural flavours company Frutarom on their acquisition of Tauranga based fruit processor Taura Foods for NZ$100m and subsequently facilitated the San Diego based Food and Agri VC Finestere’s initial investment into the Israeli-Kiwi high tech soil sensor company CropX. More investment partnerships between Israel and New Zealand are expected over the next few years as New Zealand begins to catch up with Australia, Canada, the US and the EU.