Kibbutzim successfully embrace the capitalist spirit

Published date24 October 2021
Publication titleGlobes (Rishon LeZion, Israel)
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...

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