Israeli M&A Trends in 2017, and Predictions for 2018

April 15th 2018

Israel’s M&A activity over the course of 2017, saw a rebound to the more frenetic pace of 2014 and 2015, with 131 transactions taking place, a contrast with the more restrained showing in 2016. Transactions in the Israeli market also broke the billion dollar mark on three occasions in 2017, thanks to the purchase of Mobileye by Intel, for a consideration of USD 15.3 billion, the purchase of NeuroDerm by the Mitsubishi Tanabe Corporation for USD 1.1 billion, and the purchase of part of the women’s health wing of Teva by CooperSurgical, also for USD 1.1 billion. In addition, a transaction for the sale of ICL’s fire safety and oil additives subdivisions (a transaction in which ICL was represented by our firm) for USD 1 billion to the U.S. private equity fund SK Capital was signed in December 2017 and closed in March 2018.

Moreover, after several years of decline in the IPO market, IPO activity experienced a notable increase in 2017. There were 17 IPOs during 2017, raising a total of around ILS 3 billion, compared with a total of 14 IPOs which were launched during the period from 2012 to 2016. According to the estimates provided by the Tel Aviv Stock Exchange, 2018 is expected to see a similar number of IPOs.

In 2017, similarly to previous years, a number of long-term trends in Israeli M&A activity have continued to dominate. Such trends include the continuing interest of foreign entities in the technological prowess of Israeli high-tech and bio-tech firms. 2017 included a particularly strong showing in the Israeli pharmaceutical sector, with the sale of various wings of Teva’s activity across three different transactions, together with the NeuroDerm transaction, resulting in a rise in transaction activity in the pharmaceutical sector relative to the preceding year.

It can be assumed that the fall in the number of exits (a consistent trend since 2014) is not a sign of a slow-down in the market, but rather an indication of a maturing ecosystem in which entrepreneurs are not rushing towards an exit, but rather prefer to invest in the development of their companies in order to raise their value. This trend may result in a decrease in the number of transactions in the sector, but, on the other hand, will likely give rise to transactions at more significant valuations.

Cross-border transactions continued, in 2017, to constitute the clear majority of transactions taking place in Israel. The Israeli market also saw a rise in the past year in transactions originating in North America, together with a contraction in the number of transactions involving investors from East Asia which may be attributed, in part, to the outsize influence of the Playtika transaction in 2016. Such reduction has also been contributed to by the Chinese government, which has imposed limitations on the outbound flow of capital.

Despite this regulatory measure taken by the Chinese government, it may be assumed that the cooperation between Israel and China will continue to thrive, in light of the following developments:

  1. The formation of the China-Israel Technology Fund, endowed with investment capital of USD 440 million to invest in Israeli technologies operating in the fields of internal security, robotics, automotive and cyber. Two similar funds are scheduled to be established during the course of 2018.
  2. The announcement of a number of China-Israel innovation centers. These centers are to include the launch of an R&D center by the Chinese Hangzhou Wahaha Group, as well as the opening of several unique innovation hubs by Haier, Icarbonx and Alibaba.
  3. The establishment of a Chinese-Israeli investment fund, Blueconomy, which has just completed its initial funding round, at a sum of USD 150 million, from the Chinese authorities and institutional state funds. The fund will focus on investments in the fields of energy, water purification and desalination, cosmetics and pharmaceuticals.

While we expect that these trends in Israel’s high tech industry will continue in 2018, we also expect a significant increase in the M&A activity of the more traditional industrial and financing sectors, in light of certain regulatory changes. For example, in connection with the Law for Promotion of Competition and Reduction of Concentration, we can expect M&A activity involving certain public companies, given that this law requires the dismantling of the multi-layered structure of certain corporations. Additionally, legislation enacted in 2016 which requires a separation between banks and credit card operators, requires Israeli banks to divest themselves of significant holdings in credit card companies by January 2020.

As a result, we anticipate the emergence of highly interesting opportunities for acquirers, as well as an increase in the presence of foreign companies in Israel’s M&A market. Indeed, the owners of certain major companies in Israel have already begun to search for sale opportunities.

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