Mexichem launches Israel tech hub, building on Netafim deal

TEL AVIV (Reuters) - Mexican industrial group Mexichem MEXCHEM.MX is establishing an innovation hub in Israel, building on this year's acquisition of Israeli drip irrigation pioneer Netafim.

FILE PHOTO: A general view of the company Mexichem in Mexico City November 24, 2011. REUTERS/Carlos Jasso/File Photo

The company has a team scouting for technology and start-ups that fit Mexichem’s main businesses - building and infrastructure, agriculture and data communications and basic materials, Chief Executive Daniel Martinez-Valle said.

The hub will also help develop new business models for the company’s customers and examine investment opportunities for Mexichem’s new corporate venture capital fund.

“Israel will be a significant source of deals,” Martinez-Valle told Reuters on Wednesday during a trip to Israel.

He declined to provide financial details but said this would be a significant investment priority for the next five years, adding: “Israel is the priority for building innovation.”

In February, Mexichem acquired 80 percent of Netafim, the world’s largest provider of drip irrigation systems, for $1.5 billion in cash and debt. The rest of Netafim, which has a 30 percent market share, is held by Kibbutz Hatzerim.

Netafim and the new innovation hub will work closely together. Both are part of Mexichem’s drive to address global challenges such as water scarcity and flooding.

Martinez-Valle said that despite recent volatility in financial markets he was “very optimistic for the short and long term of the company”.

In mid-year Mexichem raised its 2018 outlook for growth in EBITDA (earnings before interest, tax, depreciation and amortization) to 25-30 percent from 20-25 percent forecast at the beginning of the year.

“Today we feel optimistic we will fall within this range by the end of the year,” he said.

EBITDA in 2017 was $1.1 billion.

The CEO said he does not foresee any major impact from global trade wars on the company’s businesses. Mexichem operates in 110 countries, with Mexico accounting for 11 percent of its business and the United States 20 percent.

Netafim had EBITDA of $133 million in 2017 on sales of $949 million. Its CEO Ran Maidan said on Wednesday that in 2019 he expects double-digit EBITDA growth as Netafim capitalizes on Mexichem’s strong presence in Mexico, Brazil and other Latin American countries.

Netafim is collaborating with Mexichem to improve the Mexican company’s existing water distribution business while also reaching new customers, he said.

Netafim recently launched its management system that ensures crops receive the right amount of water and fertilisers. “It enables a farmer practically to grow his crops on his cellphone,” Maidan said.

Reporting by Tova Cohen; Editing by Adrian Croft