What led Permira to think about the theme of food and water scarcity?
It began with a focus on the fact that you have a population of seven billion people in this world (and growing) and that every day that population grows you have less arable land. You also have a change in the rapidly developing economies where the quality of their diets is improving, and in many cases moving from a rice-based diet to a protein-based diet. The amount of resources required to support that growth in population and quality of diet is significant. But yet you have fewer resources, less arable land and water is an issue everywhere. Even in water-rich places you’re under extreme pressure to conserve. You’re also being asked to do your agriculture with less energy and, as much as you can, in an environmentally friendly way. So you have what is an undeniable need for the food supply to grow but a lot of pressures on that growth.
What types of investment opportunities have you found in this area?
We’ve been very focused on companies that can help improve the productivity of the food chain. That started with our funds’ investment in Provimi, which is an animal nutrition business that we took private and sold to Cargill in November 2011. The next one was Arysta, a global crop protection business. They sell products to protect crops against fungus, weeds and insects. That’s a business that has nearly doubled its EBITDA from about $175 million to over $300 million in the five years that we’ve owned it. The third is Netafim, which is the world leader in drip irrigation, providing irrigation systems but in a much more efficient manner. In particular, their strength is they apply the water at the roots rather than the top of the plants. Its market share is about 30 percent. And water is an issue everywhere. It’s top of mind for farmers.
Tell us about Permira’s most recent acquisition in this area.
On the food cycle theme – not agriculture – is PHARMAQ, which is a deal we just closed this spring. They provide vaccines for farmed fish, particularly salmon. It’s a business that is increasingly of importance because you have more and more reliance on farmed fish – but what you don’t want to do is feed these fish a lot of antibiotics. So vaccinating is a healthier, more productive and profitable way of doing it. So this is a play on the same theme: the need to grow the food supply.
What are some of the challenges for investing behind this theme?
On the one hand, our companies are competing almost in every case against global competitors. If you’re not integrated on the back end in terms of buying on a global basis, you will not be able to compete against other global companies if you’re just buying regionally. It’s also a highly regulated market, so you have to make sure you have invested properly in a regulatory team and abide by the regulatory law. If you get that wrong, you will have challenges. You also have to make sure that you are really staying current on any changes in regulation. Lastly, you always have to remember that it is a very local business. You do need to be globally integrated, but farming is as local as you get. You need to be there on the farm talking to the farmers.