Fortune.com
By Dan Primack
What’s a U.S. private equity firm doing in a place like Greece?
FORTUNE — New York-based private equity firm Paine & Partners on Monday announced that it has agreed to pay $58 million to acquire a 67.5% stake in Eurodrip SA, a listed Greek provider of drip irrigation solutions, from Global Finance and Bellaria Holding Ltd. The €1.53 per share deal represents a 28% premium to Eurodrip’s closing price last Friday, with Paine & Partners expected to launch a tender offer for the remaining shares once the initial purchase is completed.
If you assume it’s unusual for a U.S. private equity firm to acquire a Greek company in 2012, you’d be right. In fact, it’s unique.
So I spent some time on the phone with Mitchell Presser, the Paine & Partners investor who led the deal. What follows is an edited transcript of our conversation:
FORTUNE — Why a Greek irrigation company?
PRESSER: About half of our investments historically have been outside the U.S., and we’ve done a bunch in Europe over the years. And our primary focus over the last three-plus years has been food and agriculture, and we’ve been looking a lot at water and irrigation, so this is a dead-center play for us. Remember, this is a global business. Not just a Greek business.
How did you get comfortable with the geopolitical risk?
Well, this deal took us a long time, in part because of all the thinking we had to do about those issues. For example, what if Greece exits the Eurozone. But, long-term, we decided that the Greek issues we see today should not have long-term negative impacts on the company. It’s a global business in an industry growing in the high teens. It has double-digit EBITDA growth for the past two years. 93% of its sales are outside of Greece.
Yes, there is an important manufacturing plant there and the management team is there, but it sells in 70 different countries with the U.S. and Turkey being its most important markets. Plus, the fact that it’s in Greece probably means fewer people were willing to look at it.
Do you have any plans to move the management team elsewhere?
No, not at this point. Management has been doing a great job from Greece, and we think that can continue.
My understanding if that this deal is more complicated than a traditional share block acquisition, because you did put in certain Greece-specific protections – possibly material adverse clauses (MACs) — for yourselves.
There may be situations that would give rise to changes, but we don’t anticipate needing to rely on a MAC. We think this is a great company that will survive and thrive in any environment, because it makes the use of water more efficient. Water is the most important resource in agriculture, and the sourcing of water is shrinking.
Do you view this as a platform for acquiring smaller drip irrigation companies?
We think there’ a great platform here, not just for drip irrigation but for other types of efficient irrigation. Drip irrigation is growing in the high teens, and you don’t see a lot of other industries growing that way.
Is part of your investment thesis that the Greek economy will improve so that when you choose to exit, there will be more suitors for Eurodrip than there were this time around?
Perhaps a bit, but in general we find that any time we guess how or when we’re going to exit we’re wrong. The key is buying good businesses. For example, we’re in the process of selling R360 Environmental, which we bought two years ago. If you had asked us when we bought it if we planned to sell it two years later, the answer would have been no. But the business grew well and in the process of pursuing a public offering, lots of people got excited and we reached a deal.
We think that, over whatever number of years, the demand dynamics for Eurodrip will stay strong regardless of the Greek situation, due to the inherent business in making water sourcing more efficient.
