With an investment from Britain’s Grovepoint, Kibbutz Ketura’s Algatech sees endless uses for marine agriculture. Visiting Kibbutz Ketura, 50 kilometers from Eilat and the home of Algatechnologies, which develops microalgae materials used in the cosmetic and pharmaceutical industry, CEO Hagai Stadler insists on personally introducing me to all of the company’s employees.
The subtle semantic reflects the kibbutz atmosphere that they wish to maintain under the new owners, Britain’s Grovepoint investment fund, which acquired control of the company (60%) early last year at a valuation of $50 million as a business investment. Indeed, the investment fund heads – Bradley Fried and Leon Blitz – British Jews of South African descent, have a connection to Israel, but they are first and foremost business people, as demonstrated in another investment of theirs – the acquisition of the French “Total” chain of gas stations operating in the UK.
“Grovepoint acknowledged that Algatech has unrealized potential”, says Stadler who, beyond serving as CEO of Algatech, is also Grovepoint’s Israeli representative and, as such, he seeks out investments for it. “We found a distinctive technology and we saw that it was already operational.
Beyond that, Bradley and Leon are men of values as well as being successful businesspeople. When we examined investments in Israel, we said that we want to find companies that have the potential of harnessing Israeli initiative toward adding value to the world’s shortage of resources, i.e. food and water. These are the worlds that we can relate to. We did not want just another start-up. We wanted a company that we could grow globally and we realized that Algatech was just that”.
“We do not relate to that as much. In infrastructural companies, the profit margins can reach 15% and we are looking for profit margins of 30-40%. What we want to do is take a company, grow it and turn it into something stable. We are going toward a complex and difficult process and we do not want to compete with the Chinese”.
What do you mean?
“I really like the Asians, but our added value does not lie in mass production. We are not looking for “Omega 3”, but rather for that unique substance that has an added value. A product that is not easy to grow, on the one hand, but that has a market, on the other. The world is shifting toward natural materials, made of biological organisms, as compared to synthetic materials made of oil. The world has realized that nature does it better than man”.
How does that fit in with Grovepoint’s investment in gas stations?
In Israel, Grovepoint is looking for different things. Algatech brings with it outstanding capabilities and its professionalism, drill-down capacity and strategic viewpoint is something to be learned. The complexity of the operations here is the highest. We have here a long, difficult and highly detailed process. It requires accuracy and this kind of complexity interests us.
Give me an example of a company that is your model.
“Enzymotec, for example. It just completed a very good IPO, we think that this is the kind of company that we could follow.”
Do you have an IPO planned?
“No, we are currently focusing on Algatech’s future. We want to grow, not only organically, and we are also considering acquiring companies that will enable a good fit with Algatech and allow it to increase its product offering”.
What about dividends? After all, you are an investment company.
“I assume that the desire to enjoy the investment will come around, but right now, we want to grow. We do not have a window of time, it is not Apex. We do not have a stopwatch and we are here to see companies grow. One of Grovepoint’s investors is an 80-year old Jew, one of Britain’s richest, and he says: ‘I want to see a company for 40 years. After all, once you perform an exit, where will you invest the money? In another company like the one that you just sold?”
The Good and the Bad
Algatech was founded 15 years ago when a member of Kibbutz Ketura, Yoram Hoffman completed his doctoral studies with Prof. Sammy Boussiba, an algae specialist at Ben Gurion University. He still serves as an advisor to Algatech. Hoffman, now retired, identified the potential of algae, convinced the kibbutz to invest and, supported by the JCA, they established Algatech.
The main substance that the company extracts from algae cells is astaxanthin or, in short, Asta. It is among the best active antioxidants for man “500-1,000 times more active than Vitamin E”, as explained by Chamutal Krugliak, the company’s Chief Biologist. Just as important: “unlike other nutritional supplements, Asta does not cause damage when consumed in excess.” It is a substance that positively effects vision, strengthens the immune system, improves skin texture and protects it against radiation. In addition, being an antioxidant, it serves as an anti-aging agent for all physical systems.
Algatech’s Asta production process is fascinating. First, they grow the algae cells in pampering conditions or, as Operations Manager Harris says, “in a five-star hotel.” The algae cells flow through narrow pipes with water, while introducing CO2. The pipes are protected by shading curtains and all growth parameters are subject to 24-hour monitoring. But several days later, the pampering hotel transforms into a sweatshop for the algae cells, which are transferred to different pipes where they are forced to cope with high exposure to the sun and conditions of starvation. This torture requires the cells to protect themselves by secreting the asta, which is red.
“It’s the good and the bad”, Stadler describes the unique desert conditions. “The desert has the sun and no clouds; on the other hand, the desert doesn’t like to be meddled with. It isn’t easy to deal with nature and that is actually the challenge that the company faces. There’s always something happening here – one day there are floods, then there is a haze and then a heat wave. The Aravah is one of the most difficult locations, but when you realize that this difficult location bred a company that developed a breakthrough technology, you realize that there is hope and that the best technology emerges from these difficult locations, when people have to work to their limits.
When I ask about the difference between Algatech and the NBT algae factory near Eilat, belonging to a Japanese cosmetics and health product manufacturer, Algatech points to two differences: first, Algatech works with algae cells while NBT works with algae. Furthermore, they say, the Japanese algae strain is a specific strain used to produce beta-carotene, while theirs, haematococcus, is a different strain that they developed. “Saying algae”, says Stadler, “is like saying tree. There are tens and hundreds of thousands of algae strains and species. Each algae is unique in its own right, with qualities of its own”.
“Lucky there was no air raid”
Prior to Grovepoint’s involvement, Algatech was managed as a family business. Indeed, it did not report a deficit when it caught the eyes of the Britons, but it had not yet achieved stability. Since Grovepoint took over (60%) last year, it underwent a process to change its strategic focus, efficiency and control. “Since they arrived, our operations have become more professional”, confirms chairman Hofland. “It is evident at all levels: internally, in the market and in the results. Before this, we reached our glass ceiling and now we have moved up. We needed someone to push us. We may have had the vision, but we needed the money and the executive capacity. We were the ultimate acquisition for them: we were starting to get big, but we were not professionally managed. That was the time to step in”.
Since investing in Algatech, Grovepoint has invested tens of millions of shekels in the company and as it stands, one can cautiously say that the investment is fruitful. The company is growing, turnover is increasing and the factory is currently expanding at a cost of ~60M NIS, taking over the Kibbutz dairy farm, which still owns 20% of the Company and JCA, which retained similar holdings. “If you’d have asked anyone in the Kibbutz about the dairy farm disappearing”, Stadler describes the complexity of the partnership, “they would have thought you’re delusional. And yet, we did it”.
Recently, he adds, Algatech signed a cooperation agreement with Germany’s Schott Corporation, which manufactures glass components for the pharma, chemical and solar industry. “They wanted to enter the algae world as partners in development and Algatech had become their main R&D activity”, says Stadler. “They will develop more effective pipes, whose radiation will be improved. As a result, we managed to increase our production by 10%. We place our efforts in the algae and they place theirs in the glass”.
Algatech is Grovepoint’s first investment in Israel. Grovepoint was founded four years ago and it manages billions of dollars in investments. “Just so you understand who these people are”, Stadler relates to his employers. “Brad’s son had a Bar Mitzvah in the midst of Operation Protective Edge. He wanted to have it in Israel and bring many people from overseas. I suggested that he think about it, but he was determined. He insisted that they celebrate in Israel. People came to the celebration and there was a missile interception during the event, but luckily there were no sirens sounded. That goes to show you what kind of people we are dealing with, people who have a real commitment to Israel”.
In his vision, Stadler sees Algatech as a farm for growing dozens of microalgae species, each of them applied to a different objective “encouraging metabolism, for example” – and the Aravah as the Silicon Valley of marine agriculture, which is currently “very primitive”. “The Aravah is not just about peppers”, he says. “Not that I have anything against peppers, but I believe that Israel should focus on niche agricultural fields, not simple ones; and not peppers that were grown in hothouses 20 years ago and can be imitated”.
“I truly hope that the Aravah picks up the gauntlet on all that is related to marine creature biotechnology. Thus far, only 5% of the algae were studied. This potential of providing people food through marine products is only just appearing. It is a super-attractive world and, when looking at the needs of the world, one must take advantage of the capabilities in Israel, like Prof. Boussiba’s research lab and the Lake and Sea Research Center. Israel has the proper marine agriculture potential and institutions, and there is no reason not to do it.”
View original article at: Algae are more than just Sushi