14 THE US-ISRAEL | Legal Review 2025/26 The Risks Are Real Resilience is genuine, but it is not unlimited. Several structural pressures deserve honest attention. New startup formation has declined. Active investor participation dropped 20% quarter-over-quarter by Q3 2025. Brain drain is a live concern: some founders and senior engineers have relocated abroad, and Israel’s government introduced a tax reform package in early 2026 specifically designed to reverse that trend. The fact that policy intervention was deemed necessary says something. For acquirers, the most immediate operational risk is post-close talent retention. A significant portion of Israeli engineering teams have dealt with reserve duty obligations, displacement, and extended personal disruption. Deals that looked solid at signing have run into trouble at integration when key people left. Explicit retention structures, competitive compensation frameworks, and realistic integration timelines are not optional extras here but rather table stakes. There is also a regulatory dimension that is easy to overlook. Israeli companies that have received grants from the Israel Innovation Authority carry material restrictions on technology transfer, IP licensing, and manufacturing relocation. These obligations survive an acquisition and must be factored into deal structure from the outset, not discovered during post-close integration. What 2026 Looks Like As of early 2026, the market is showing early signs of normalization after the record exit wave. M&A activity is continuing with ServiceNow’s acquisition of Pyramid Analytics and Medtronic’s USD 585 million deal for AI cardiology firm CathWorks among the early transactions of the year. The IPO window reopened meaningfully in 2025 - seven Israeli companies went public at a combined USD 14.6 billion, led by Navan and eToro, giving founders an alternative exit path for the first time in years. The consensus among Israeli VCs surveyed at the start of 2026 is that cybersecurity and AI will continue to dominate, with quantum technologies emerging as a third area of focus. The narrative is also shifting from ‘Startup Nation’ to something more mature, more focused on scale, and more explicitly resilient. For acquirers with a long horizon, that evolution is relevant, the assets coming to market in the next two to three years will look different from those that defined 2025. The Bottom Line 2025 confirmed what the most active acquirers in this market already knew: Israeli tech produces world-class assets, and conflict has not changed that. But the year’s record numbers also mask real concentration risk, a thinning mid-market, and structural pressures on the talent pipeline that anyone buying in 2026 needs to take seriously. The companies worth acquiring are identifiable. They have earned their resilience through deliberate operational design, not circumstance. Finding them requires more careful diligence than the headline deal pace might imply, but the strategic rationale for doing that work remains as strong as ever. Author Sharon Vanek CICC Executive Director
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