M&A Overview: Israel dealmaking sets new records
Israel M&A set new records for value and volume in 2017, and 2018 is shaping up to be another banner year.
Israel's thriving start-up scene continues to draw attention from around the globe, resulting in record M&A deal activity in 2017.
Israel is home to more start-ups per capita than any other nation in the world. It also spends more on research and development, as a share of GDP, than any other developed country. As such, it is a seedbed for high-growth firms, particularly in the tech, cybersecurity and fintech industries. The dynamism of its entrepreneurs, and their ability to address demand and solve modern day challenges with cutting-edge technologies, keeps foreign acquirers coming back year after year.
Yet Israel also poses distinct challenges to investors. Success depends on an ability to navigate intense geopolitical dynamics as well as an evolving regulatory environment.
To better understand where dealmaking is headed in Israel, White & Case partnered with Mergermarket to survey 58 senior-level executives at Israel-based companies and private equity (PE) firms about their outlook for M&A. This report, the second in an annual series, highlights recent deal trends in Israel, reveals investor sentiments about the future, and identifies likely opportunities and challenges for the coming year.
Key takeaways include:
Israel M&A set new records for value and volume in 2017, and 2018 is shaping up to be another banner year.
One in four respondents to our survey say their companies will be involved in more deals in 2018, compared to 2017.
Compared to last year’s survey, more respondents said that foreign buyers will more active than domestic acquirers in the future.
Sixty-eight percent of respondents chose regional instability as one of their top three challenges to dealmaking in Israel.
Trends related to technology, China, the US, outbound deals and regulations are most likely to shape the future of M&A in Israel.
All signs point to a healthy M&A market in 2018. There is no shortage of disruptive companies to acquire, and the country’s pro-competition legislative agenda is helping to build a strong deal pipeline for the future.
Based on our survey, market data, and experience in the market, we expect the following trends to define Israeli M&A over the next 12 months:
Israel’s booming start-up landscape will continue to bring a steady stream of assets to the market. Our survey shows that cybersecurity will be a key focus for investors. This is due to both the technological prowess of Israeli firms and the intense global demand for cybersecurity assets in the face of growing security concerns.
China was notably absent from the market in 2017, following the tightening of its outbound M&A rules in late 2016. A revision of these rules, which now provide greater clarity, should result in Chinese bidders increasingly returning to the fold in 2018.
While not unique to Israel, the Trump administration’s corporate tax overhaul could lead to the repatriation of capital and lower overseas investment. As the biggest investor in Israel in 2017, any pullback from US companies could be felt keenly.
Given the domestic market’s growth limitations, Israeli companies are likely to increasingly pursue outbound M&A in order not only to acquire revenues in the first instance, but also to access greater long-term economic growth.
The December 2019 deadline for compliance with the Anti-Concentration Law has implications for M&A activity in 2018, and will be keenly watched by dealmakers. It has been reported in the press that several large sponsors have been preparing for the sale processes of the two largest credit cards in Israel, which are due to begin imminently.
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