FIMI cashes in on Bet Shemesh Engines revival

when FIMI Investment Opportunities Funds buy control of Beit Shemesh Engines In 2016, it is doubtful that anyone could have imagined such a success: a fourfold return on investment in a veteran industrial company founded more than fifty years ago. The return is impressive even by the standards of the private equity firm headed by Ishai Davidi (although it has had similar successes in the past, such as with Hadera Paper, Inrom and Polyram).

In that deal, which was concluded eight years ago, Vimi bought a majority stake in the Beit Shemesh Engines Company from Len Blavatnik’s Clal Industries and the company’s former CEO Avner Shaham. On Monday of this week, Vimi sold part of its stake in the company, which produces and refurbishes aircraft engine parts, to a group of financial institutions, benefiting from a more than 170% rise in its share price in the past year.

Vimi sold 10% of its shares in Beit Shemesh Motors to Clal Insurance, Meitab, Yellen Lapidot and Mor for NIS 178 million, an 11% discount to the market price. The sale represents more than a quarter of Vimi’s stake in Beit Shemesh Motors, leaving it with a 25% stake, meaning it retains control. Vimi previously sold part of its stake in the company in 2019 for NIS 100 million.

FIMI Opportunity Funds was founded in 1996. It specializes in buying industrial, commercial and service companies, significantly improving their performance, and then selling them. The company has made about 70 exits over the years, and Bet Shemesh Engines is certainly one of the most impressive.

In the period 2016-2018, FIMI invested approximately NIS 200 million in purchasing a controlling stake in Bet Shemesh Engines, and to date, including this week’s sale, has sold shares worth NIS 350 million.

The company continues to hold shares with a market value of NIS 500 million, as the market value of Bet Shemesh Engines is about NIS 2 billion, which means that its total gains from its investment are about NIS 650 million.

Bet Shemesh Engines is a different company today than it was in 2016. Shortly after buying its initial stake in the company, FIMI appointed Ram Drori as CEO, and FIMI’s senior partner Gillon Beck, who is considered the company’s number two after Davidi, was appointed president. The company underwent a simplification program, and a strategic thinking process on how to grow it.

Beit Shemesh Engines has begun investing tens of millions of dollars in defense technology and engineering. A market source told Globes: “The demand in the aerospace industry is at an all-time high, and there aren’t many companies that can manufacture such complex parts as Beit Shemesh Engines, and it works with the world’s largest companies in the industry. In defense, you become a partner in the development itself, not just producing the parts.”

The strategy was also evident in the fact that earlier this year the company announced a contract to develop and produce jet engines. Due to defense secrecy, few details are known about the contract, but the company has received orders worth $75 million for the new engine it is developing, and expects additional orders worth up to NIS 1 billion.

Bet Shemesh Engines has been expanding rapidly. In 2015, before it was acquired by FIMI, its total annual sales were $77 million. In its recently released financial statements for the second quarter of 2024, the company reported sales revenue of $62 million in a single quarter.

The rapid growth is due in part to the $58.5 million acquisition of Carmel Forge in 2018. Carmel Forge supplies raw materials to Bet Shemesh Engines, and after the acquisition, the latter’s revenue doubled within a year.

In 2023, Bet Shemesh Engines recorded revenues of $210 million, and at the current rate, revenues are $250 million annually. The company’s framework agreements have also grown during the FIMI years, from $170 million to $2 billion.

“When a large overseas client signs a five- or even ten-year contract worth $250-300 million, he must be sure that Bet Shemesh Engines will deliver on time, without problems, and with all requirements,” says the market source. “This was not the case a decade ago, and under the umbrella of FIMI trust was created in the company.”

In 2022, Beit Shemesh Motors’ net profit was $4.7 million. Last year, it jumped to $60 million, but that was mainly thanks to the sale of land adjacent to the Beit Shemesh Motors plant to Migdal Insurance for NIS 320 million. In the second quarter of 2024, profits rose to a record $9 million, giving a profit of $16 million for the first half of the year, more than three times the profit for the corresponding period in 2023.

“This company has a good business in both civil and military aviation,” the source said. “It produces key components and is therefore likely to continue to benefit from global demand and the strong tailwinds that follow in both areas.”

Beit Shemesh Engines’ customers include major companies such as Pratt & Whitney, General Electric and Rolls Royce. In 2023, 71% of its revenues came from the civilian market and the rest from the military market. 80% of its sales are export sales.

This article was published in Globes, Israeli Business News – en.globes.co.il – on August 22, 2024.

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