EMEA Regional editor Ben Naylor looks back at the trends in the Israel M&A market in 2016
Israel has had an active inbound M&A market for almost two decades, and this continued to be the case in 2016. A combined $5.5 billion was spent across 47 deals in the first half of 2016, the second largest figure ever recorded in the country for the first six months of the year.
Historically the majority of investment into Israel has been in the high-tech industry, which today contributes around $40 billion to the country’s GDP. Israel’s capital, Tel Aviv, has established itself as a start-up hub and continually produces innovative businesses that attract interest from abroad. Largely this is thanks to Israel’s strong emphasis - and investment in - facilitating research and development, which Israel spends more on than any other country according to OECD.
Within high-tech, Israeli cyber security start-ups have been of particular interest to investors of late. IBM’s acquisition of Trusteer, Microsoft’s purchase of Adallom, and CCL Industries’ $532 million acquisition of Checkpoint are just a few examples. Israel’s expertise in the industry has been honed through its military’s preoccupation with the technology given the state’s acrimonious relationships with most of the Middle East.
Several other interesting trends can be seen in Israeli M&A. Firstly, Israeli companies are becoming more acquisitive, both domestically and abroad. In the past, successful Israeli businesses tended to follow a similar life cycle of growing to a certain size organically before being acquired by an international - often US - business or investor. Recently, more companies have been going public - usually through a Nasdaq IPO - so have been able generate funds for acquisitions. Nasdaq listed Mellanox Technologies $811 million purchase of EZchip is one recent example of a domestic transaction.
Secondly, Chinese investment into Israel has intensified. China’s activity in the country was noticeable five years ago but, encouraged by Israel’s government as it looks to develop closer ties with countries outside Europe, it has risen. For China the appeal of Israeli businesses is technology rather than resources. The Asian country’s recent investments can be seen in food production. Chinese state-owned business Bright Food’s purchase of Israel’s biggest dairy, Tnuva, in a deal which valued the business at almost $2 billion, from Apax Partners, for example.
Another recent driver for M&A in Israel was the enactment of controversial legislation known as the anti-concentration law in 2013. The law was devised to break up the few large Israeli corporations and family-owned businesses which controlled most of the economy, and to promote competition. Broadly speaking the law requires these conglomerates to divest of various companies by the end of 2019. Tnuva’s sale was necessitated by the law and in total around 40 businesses will have to change ownership. The attractive assets that are yet to be sold include all the country’s, currently bank-owned, credit card businesses.