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growing through their own local acquisitions in Israel. The fact that Israeli companies are
looking to grow through local acquisitions shows that not all high-tech entrepreneurs
are looking for an early “exit”, and reflects a greater maturity and confidence in the
Israeli high-tech sector. This is undoubtedly helped by the growing ability of the more
mature Israeli hi-tech companies to raise capital both privately and in public markets.
Some of the world’s largest private equity funds are looking closely at Israel for
opportunities. As a general rule, these funds are looking for more mature companies,
with proven revenue history and especially with export sales. There are numerous
such opportunities in Israel of companies still controlled by the founding shareholders
or by the second generation, or owned by Kibbutzim.
Notable private equity transactions over the last year include the acquisition of an
80%stake inKeter Group,a resin consumer products provider,by leadingglobal private
equity fund BC Partners, and Public Sector Pension Investment Board of Canada, in a
transaction valuing Keter at approximately US$1.6 billion. Francisco Partners acquired
ClickSoftware for US$438 million, and Siris Capital Group acquired Xura Inc. (formerly
Comverse, one of Israel’s early technology success stories) for US$643 million.
Investment from Asia, in particular China, Korea and Japan, is changing the makeup
of foreign investment in Israel across a wide spectrum of activity, from traditional
industry to the financial sector to technology.
The Law for Promotion of Competition and Reduction of Concentration continues to
cast a shadow over some of Israel’s largest corporate groups. As its name indicates,
the Law was introduced in order to promote competition in the over-concentrated
Israeli economy. At the end of an initial transition period, it will no longer be permitted
for a single investment group to own both a substantial financial enterprise and a
substantial non-financial enterprise. As a result,a number ofmajor financial enterprises
(banks and insurance companies) and industrial concerns will inevitably be sold off in
the coming years. That said however, it has proved a challenging exercise to find a
buyer, in particular for Israel’s major insurance companies, all of which are “up for sale.”
The Director of Capital Markets, Insurance and Savings at the Ministry of Finance has
yet to approve any of the potential buyers for Israel’s large insurance companies.
One external factor which has led to the break-up of some of Israel’s major
conglomerates has been the implosion of some of the largest corporate groups under
the burden of indebtedness owed to banks and to public bondholders.
When he came into office, Israel’s new Finance Minister Moshe Kahlon faced a number
of major economic challenges. A principal feature of the Minister’s platform has been
to introduce competition into Israel’s banking sector. The banking sector is dominated
by Israel’s two largest banks, Bank Leumi and Bank Hapoalim. The Minister, together
with the Bank of Israel, established a committee to recommend ways to increase
competition in the banking and finance sector, especially for domestic and small
business customers. The various factions on the Committee have been struggling to
reach an agreed set of recommendations. Whatever the outcome, it seems clear that
Some of the world’s largest private equity funds are looking closely at Israel
for opportunities. These funds are looking for more mature companies, with
proven revenue history and especially with export sales.