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Outlook for M&A in Israel: Momentum builds on record-breaking 2017

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Global demand for Israeli tech assets is pushing deal activity to new highs, while domestic firms increasingly seek scale abroad.


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 set new records for deal value and volume in 2017
    Investors poured US$25.7 billion into 109 transactions in 2017, marking a 33 percent uptick in value compared to the previous year, and the highest annual volume on record. This was led by foreign investment, which increased to its highest levels of volume on record. And figures suggest that Israel M&A is heading for another strong year – a total of US$4.3 billion worth of deals announced in Q1 almost doubled Q4 2017.
  • Stakeholders expect growth to accelerate
    Seventy-nine percent of respondents say their companies will be involved in more M&A in the next 12 months compared to the previous. That is twice the percentage who said they expected more activity in our previous report.
  • Stakeholders expect an increase in dominance of inbound deals
    In a shift from last year's findings, respondents expect foreign public companies and PE firms to be more active than domestic private companies and PE firms.
  • Regional instability is the top concern
    Legal and regulatory issues and the challenge of settling on valuations are also seen as significant potential barriers to closing deals. Global economic volatility, the top concern identified in last year’s survey, fell to fourth place this year.

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.

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Expectations are high for future growth

One in four respondents to our survey say their companies will be involved in more deals in 2018, compared to 2017.

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Dominance of inbound deals expected to increase

Compared to last year’s survey, more respondents said that foreign buyers will more active than domestic acquirers in the future.

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Regional instability is top concern

Sixty-eight percent of respondents chose regional instability as one of their top three challenges to dealmaking in Israel.

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Conclusion: Five trends to watch in the coming year

Trends related to technology, China, the US, outbound deals and regulations are most likely to shape the future of M&A in Israel.

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Expectations are high for future growth

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  • 79 percent of respondents expect to be involved in more deals over the next 12 months compared to the previous 12 months
  • 69 percent expect competition for Israeli assets to increase over the next 12 months
  • 64 percent expect increased availability of debt over the next 12 months

The outlook for M&A in Israel is resoundingly positive, and optimism among market participants is running high. Convergence in the technology sector and demand for tech investments among financial sponsors plays to the country's strengths. Overseas investors are making more deals than ever before, and the country has had its best year for M&A on record.

Our survey finds that 79 percent of respondents expect to be involved in more deals over the next 12 months compared with the previous 12 months. This number more than doubles the 36 percent of respondents who said this in last year's survey.

The significant demand among overseas acquirers to access Israel's technological knowhow is a key driver of activity. The advances that Israeli companies have made in recent decades have put them at the vanguard in areas ranging from cybersecurity to autonomous driving, and there is no sign that demand for these premier assets will abate.

"Israel is attracting increasing interest for its technology assets. This demand is silently creating competition for assets as businesses want to keep this newfound destination a secret," says an executive of an Israeli insurer.


of respondents expect competition to increase over the next 12 months


Concentration laws are invigorating M&A

Another reason for this optimism is the impact that Israel's Anti- Concentration Law is having on the investment climate within the country. The legislation dismantles the country's "business pyramids"—multi-tiered holding companies that own businesses in multiple sectors—in a bid to lessen their political influence and boost market competition.

Passed in 2013, the law has been phased in gradually. The country's business pyramids were given four years to consolidate their holdings into three tiers, with a further two years to reach the two-level limit permitted by law. For one executive of an Israeli PE firm, the effects of this process are beginning to be felt: "The concentration of businesses in Israel is slowly diluting and there is suddenly a wave of opportunities that have shown up in the country. We had planned a certain set of deals to complete over the next 12 months, but looking at the available prospects, our expectations have been exceeded."

The process appears to be having the desired effect on competition. Sixty-nine percent of respondents expect competition for assets to increase over the next 12 months, compared with 53 percent who said this a year ago. And 28 percent expect competition to significantly increase, versus 18 percent a year ago.

For certain domestic corporate acquirers, particularly those with an already diverse asset base, the law may be more of a hindrance than a help, as some deals are more likely to be blocked.

But the majority say that access to acquisition financing will improve, with 64 percent anticipating greater availability of debt over the next 12 months. This compares favourably against the 44 percent who said the same a year prior.

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