• 79 percent of respondents expect to be involved in more deals over the next 12 months compared to the previous 12 months
  • 69 percent expect competition for Israeli assets to increase over the next 12 months
  • 64 percent expect increased availability of debt over the next 12 months

The outlook for M&A in Israel is resoundingly positive, and optimism among market participants is running high. Convergence in the technology sector and demand for tech investments among financial sponsors plays to the country's strengths. Overseas investors are making more deals than ever before, and the country has had its best year for M&A on record.

Our survey finds that 79 percent of respondents expect to be involved in more deals over the next 12 months compared with the previous 12 months. This number more than doubles the 36 percent of respondents who said this in last year's survey.

The significant demand among overseas acquirers to access Israel's technological knowhow is a key driver of activity. The advances that Israeli companies have made in recent decades have put them at the vanguard in areas ranging from cybersecurity to autonomous driving, and there is no sign that demand for these premier assets will abate.

"Israel is attracting increasing interest for its technology assets. This demand is silently creating competition for assets as businesses want to keep this newfound destination a secret," says an executive of an Israeli insurer.

Concentration laws are invigorating M&A

Another reason for this optimism is the impact that Israel's Anti- Concentration Law is having on the investment climate within the country. The legislation dismantles the country's "business pyramids"—multi-tiered holding companies that own businesses in multiple sectors—in a bid to lessen their political influence and boost market competition.

Passed in 2013, the law has been phased in gradually. The country's business pyramids were given four years to consolidate their holdings into three tiers, with a further two years to reach the two-level limit permitted by law. For one executive of an Israeli PE firm, the effects of this process are beginning to be felt: "The concentration of businesses in Israel is slowly diluting and there is suddenly a wave of opportunities that have shown up in the country. We had planned a certain set of deals to complete over the next 12 months, but looking at the available prospects, our expectations have been exceeded."

The process appears to be having the desired effect on competition. Sixty-nine percent of respondents expect competition for assets to increase over the next 12 months, compared with 53 percent who said this a year ago. And 28 percent expect competition to significantly increase, versus 18 percent a year ago.

For certain domestic corporate acquirers, particularly those with an already diverse asset base, the law may be more of a hindrance than a help, as some deals are more likely to be blocked.

But the majority say that access to acquisition financing will improve, with 64 percent anticipating greater availability of debt over the next 12 months. This compares favourably against the 44 percent who said the same a year prior.

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