Carlyle plots irrigation expansion from European base

The Carlyle Group‘s new irrigation platform will seek to provide a multi-solution offering that is largely unmatched by a market yet to experience an M&A consolidation.

The Farmfront Group was announced in October and includes the combination of four irrigation companies acquired since 2022 by the NASDAQ-listed firm’s European buyout fund.

Caryle said the €200 million annual turnover of the group – which is comprised of Piacenza, Italy-headquartered Irrimec; Spain-headquartered RKD; Otec of France; and Ocmis Group, which is headquartered in Modena, Italy – already makes Farmfront the largest mechanical irrigation player in Europe.

Carlyle managing director Filippo Penatti told Agri Investor his team identified irrigation as part of the generalist fund’s focus on sustainability and the green economy. Irrigation and water-focused technology specifically, also benefit from concerns related to global population growth and water scarcity, he added.

“Global irrigation is a fragmented market, where we have many entrepreneurial companies who are playing mostly at a regional scale and it’s a market not really been shaped by M&A, and private equity, to date, has not played a significant role,” said Milan-based Penatti, who has been with Carlyle for more than 23 years, according to his LinkedIn profile. “Today, these regional players tend to be focused on a single technology, but you don’t really find someone who is able to provide all the solutions. We identified there is an significant opportunity here to re-shape the industry.”

Among the largest existing global irrigation companies is Israel-headquartered Netafim, in which Permira sold its stake to Mexican chemical provider Mexichem in 2017; and Rivulus, an irrigation products and services provider headquartered in Israel currently owned by Temasek and previously a portfolio company of Paine Schwartz Partners.

“These players are concentrated on mono-technology in drip irrigation; they are not playing in the mechanical space at all. After those two companies [Netafim & Rivulus], most tend to be pretty segmented and that’s definitely a space that we would like to explore further,” said Penatti. “There are good assets in the market that don’t necessarily fit the scale of those companies, but within a larger platform they have strong potential to accelerate growth and add a lot a portfolio like ours.”

Farmfront chief executive Daniel Neves – who previously served two years as president for Southern Europe at Netafim, according to his LinkedIn profile – told Agri Investor the company plans to continue a strong focus on its status as a leader within the European irrigation market. In the statement announcing Farmfront’s launch, he highlighted that just 18 percent of the world’s arable land is currently irrigated and of that, just 25 percent is watered through efficient technology.

Neves, who is from Brazil, said over the long-term the company intends to expand throughout Asia, the Middle East and the Americas.

“The opportunity we have here in terms of growth will definitely attract many kinds of different investors when the time for exit comes,” he added. “The uniqueness of having all technologies. The uniqueness of Farmfront’s position in terms of having a look on the farmer and what the farmer needs and what we can offer to the farmer and also the dealer and others in the chain; this is what will really make a very important change in the irrigation market.”

Resonating with LPs

Carlyle’s Farmfront investment drew from the fifth iteration of its Europe Partners vehicle, which closed on €6.4 billion in 2019 after securing commitments from more than 300 LPs from more than 35 countries. Investors in the vehicle include pension funds, sovereign wealth vehicles, individuals and others and its strategy includes investments in aerospace, energy, high-end interior design and other sectors.

Penatti said that while there were no investors that highlighted a desire to invest in agriculture specifically, the launch of Farmfront has generated significant interest.

“This deal has received a lot of attention from our LPs. A lot of attention to understand the deal and also willingness to put in additional capital if needed. We see that this is a sector that actually resonates quite well within our investor base. Maybe more than others, in a way,” he said. “This is a sector where themes of sustainability are something that’s probably more attractive than it used to be.”

Penatti noted that Carlyle irrigation investment comes at a time when an increasing number of specialist investors are focused on ag-related sustainability businesses and generalists like Carlyle are looking to expand within the sector.

“Within our general fund, we intend to now develop an expertise in agriculture because it’s a sector that we want to cover somehow,” he added. “Instead of saying we want to invest in agriculture generally, we believe that irrigation has stronger tailwinds than other sub-sectors.”