Global demand for Israeli tech assets is pushing deal activity to new highs, while domestic firms increasingly seek scale abroad

Israel is home to more start-ups per capita than any other nation in the world. It also spends more on research and development, as a share of GDP, than any other developed country. As such, it is a seedbed for high-growth firms, particularly in the tech, cybersecurity and fintech industries. The dynamism of its entrepreneurs, and their ability to address demand and solve modern day challenges with cutting-edge technologies, keeps foreign acquirers coming back year after year.

Yet Israel also poses distinct challenges to investors. Success depends on an ability to navigate intense geopolitical dynamics as well as an evolving regulatory environment.

To better understand where dealmaking is headed in Israel, White & Case partnered with Mergermarket to survey 58 senior-level executives at Israel-based companies and private equity (PE) firms about their outlook for M&A. This report, the second in an annual series, highlights recent deal trends in Israel, reveals investor sentiments about the future, and identifies likely opportunities and challenges for the coming year.

Key takeaways include:

  • Israel set new records for deal value and volume in 2017

Investors poured US$25.7 billion into 109 transactions in 2017, marking a 33 percent uptick in value compared to the previous year, and the highest annual volume on record. This was led by foreign investment, which increased to its highest levels of volume on record. And figures suggest that Israel M&A is heading for another strong year – a total of US$4.3 billion worth of deals announced in Q1 almost doubled Q4 2017.

  • Stakeholders expect growth to accelerate

Seventy-nine percent of respondents say their companies will be involved in more M&A in the next 12 months compared to the previous. That is twice the percentage who said they expected more activity in our previous report.

  • Stakeholders expect an increase in dominance of inbound deals

In a shift from last year's findings, respondents expect foreign public companies and PE firms to be more active than domestic private companies and PE firms.

  • Regional instability is the top concern

Legal and regulatory issues and the challenge of settling on valuations are also seen as significant potential barriers to closing deals. Global economic volatility, the top concern identified in last year’s survey, fell to fourth place this year.