Our thinking

Outlook for M&A in Israel: Execs expect the bull run to continue

What's inside

Our third annual survey finds that a bullish outlook and the ascendance of domestic and Asian buyers could make 2019 a standout year


Israel had a stellar year for M&A in 2018. The country set a new record for value, logging US$26.5 billion over 103 deals. Such strong M&A activity may have come as no surprise to readers of last year's issue of Outlook for M&A in Israel. Indeed, 79 percent of executives we surveyed for last year’s report said that they expected to be involved in more deals in the year ahead than in the previous year.

Can Israel continue its M&A streak in 2019? That would be impressive, given that the country has set new records for value in every year since 2016. Both domestic and international politics are uncertain. And the global economy may be heading for a downturn—indeed, a number of economies are already slowing.

For the third year in a row, we conducted a survey to gain insight into the future of Israel M&A. In the first quarter of 2019, Mergermarket surveyed 51 senior-level executives at Israeli companies and private equity firms on their outlook for M&A. The survey included a combination of qualitative and quantitative questions, and all interviews were conducted over the telephone, by appointment.

Our research suggests that M&A will continue apace or even accelerate in 2019, as Israeli dealmakers enthuse about the current market.

Key takeaways from the study include:

  • Optimism about future dealmaking is stronger than ever
    More than three-quarters of survey respondents (76 percent) expect to complete more M&A transactions over the next 12 months than they did in 2018, with optimism about the level of deal activity remaining about the same as it was last year. Anxieties about the availability of financing have not affected confidence regarding dealmaking.
  • Global economic headwinds do not worry dealmakers
    More than three-quarters of respondents (76 percent) say a global economic slowdown would not make them less likely to engage in M&A. Some 37 percent say a slowdown would actually increase the chances of them doing a deal.
  • Expect domestic acquirers to dominate, Asian investment to rise
    In recent times, international dealmakers have dominated Israel’s M&A market, but respondents expect domestic acquirers to step up activity in the year ahead. More than two-thirds (69 percent) anticipate that Israeli private companies will be most active over the next 12 months. Respondents also anticipate an increase in the number of Asian acquirers as a proportion of the international dealmakers active in the country.


Israel M&A, by the numbers

Selected charts provide an overview of 2018 performance, including M&A value and volume, top deals, leading sectors and top inbound bidders.


Optimism about M&A is stronger than ever

Deals targeting Israeli companies hit an all-time high of US$26.5 billion in 2018, from 103 deals—an increase of 4.5 percent in terms of value compared to 2017. 

Global economic headwinds do not worry dealmakers

Many survey respondents are so confident about the prospects for M&A activity in the next 12 months that they do not view a possible global economic slowdown as an obstacle. 

Expect domestic acquirers to dominate and Asian investment to rise

The shift could be dramatic: In 2019, 69% of respondents predicted that private companies would be among the most active types of acquirers in the coming year, compared to just 23% who said so in 2018.


Four trends set to define 2019 and beyond

Our research suggests that M&A activity involving Israeli companies is set to remain strong during 2019 and beyond, despite potential challenges from slower global growth and both regional and international political volatility.

Coins Hero M&A in Israel

Optimism about M&A is stronger than ever

5 min read

US $26.5 billion
value of deals in 2018 targeting Israeli companies— an increase of 4.5 percent compared to 2017 and an all-time-high total

Deals targeting Israeli companies hit an all-time high of US$26.5 billion in 2018, from 103 deals—an increase of 4.5 percent in terms of value compared to 2017. Much of this increase was due to a jump in domestic dealmaking, which increased 178 percent over 2018 to almost US$8.1 billion as deal flow from foreign buyers fell 18 percent to US$18.4 billion. Additionally, outbound activity also dropped 39 percent to US$2 billion. 

These totals include a number of headline-grabbing deals. Inbound M&A was headed by Frutarom Industries' US$7 billion acquisition by US-based chemicals and materials firm International Flavors & Fragrances. The next biggest deal was in the consumer sector, when US giant PepsiCo announced it would pay US$3.2 billion for SodaStream International.

And, according to our survey of 51 senior Israeli executives, the 2019 outlook could be even stronger, with domestic dealmakers increasingly optimistic about the M&A environment, ready to continue acquiring in the face of any global downturn, and challenging foreign investors for prize assets at home while also welcoming new entrants from Asia.

After two exceptionally busy years for M&A activity in Israel, our survey respondents seem unconcerned that the market may pause for breath, and remain upbeat about 2019. Indeed, 25 percent of respondents expect their organization to do significantly more deals over the next 12 months than in 2018—ahead of the 19 percent who predicted a much busier period a year ago. A further 51 percent anticipate doing moderately more deals, while just 2 percent think M&A activity will decline.

There are several explanations for this positive outlook. One is certainly the continuing strength of Israel's technology sector, with startup and scale-up businesses often found at the center of M&A, both domestically and internationally (see "Technology still on top", page 11, for more).

And, even early in 2019, the burgeoning tech market is once again proving irresistible to foreign buyers—eight of the top-ten deals are in the sector. Major transactions include UK private equity firm Novalpina Capital's purchase of cyber intelligence business NSO Group for US$850 million.

Another factor is the growing maturity of Israeli businesses and their determination to diversify. "Entrepreneurs in Israel are seeking out multiple trading routes to support their domestic business," explains the managing partner of one private equity firm. "Bidding on non-Israeli companies means venturing into newer markets and settling into the next phase of operations for the organization."

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Competition drives value

With startups requiring funding to grow and innovative technology a key driver for global M&A, the best Israeli assets are in ever-higher demand, with survey respondents expecting competition for targets to intensify over the next 12 months. Some 43 percent foresee a significant increase in competition for Israeli assets, well ahead of the 28 percent who expected the same a year ago as well as the 18 percent who held this view in 2017. A further 35 percent expect a moderate rise in competition during 2019.

This competition looks likely to be buoyed by growing interest in Israeli businesses from both domestic acquirers and an influx of Asian suitors who are set to join US companies with a long track record of bidding on the country's assets. And with so many bidders doing battle for the best companies, deal values should rise higher even if volume does not increase.

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Funding under pressure? 

Such competition might seem counterintuitive given the global economic backdrop, with growing trade tensions between the US and China and ongoing uncertainty around Brexit. Moreover, there is no guarantee that the availability of financing will remain at current levels. While 39 percent of survey respondents predict an increase over the next 12 months, the same number predict no change, while 22 percent expect funding levels to decline. Indeed, on funding at least, respondents are markedly less optimistic than in recent years. 

Nevertheless, there has been no corresponding drop-off in optimism. Israeli businesses' record of innovation is proving impressive enough to attract increasing numbers of buyers even during a tougher economic period, while also underpinning a rise in the number of domestic companies that are willing and able to engage in M&A.


Technology still on top

With Israel now second only to the US on a per capita basis in the launch of innovative technology-based companies, the country's high-tech sectors are a natural target for M&A. In our survey, 90 percent of respondents picked the technology and media industry as likely to be among the top-two most appealing sectors to acquirers of Israeli companies this year. The next most cited sector, life sciences, scored just 29 percent.

That would be a continuation of recent trends. There were 42 M&A deals in the TMT sector between the beginning of 2018 and the end of Q1 2019, more than twice as many as in any other sector. Deal values were higher only in the industrials and chemicals industry, where a single transaction, the US$7 billion purchase of Frutarom, accounted for most of the US$8.3 billion total deal value.

Several technology sub-sectors remain white hot. More than half of survey respondents (51 percent) think cybersecurity firms will be in particular demand with acquirers this year, while mobile technology specialists, cited by 27 percent, are also expected to be widely coveted.

And while Israel's small startup tech businesses are much admired, its more established companies continue to sell too. The US$3.1 billion acquisition of semiconductor specialist Orbotech by US company KLA-Tencor was the third-biggest Israeli M&A deal of 2018.

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