In May 2014, the Chinese food conglomerate Bright Food Group and Apax Partners announced a transaction that will see Bright Food acquire Apax’s 56 per cent stake in Israel’s largest food company, Tnuva. (We acted for Bright Food on the deal.) The deal for Tnuva, an iconic brand in Israeli homes, reflects a trend of rising Asian interest in the Israeli economy, including for large-scale M&A targets.
The Bright Food deal follows a number of other sizeable China–Israel acquisitions over the last few years:
- ChemChina’s $1.4bn acquisition of a 60 per cent stake in Makhteshim Agan Industries;
- Fosun Pharma’s $200m acquisition of Alma Lasers; and
- the $430m contemplated acquisition by a group of Chinese investors of IDB’s control stake in Clal Insurance.
The growing East Asian-Israeli business relationship
The trend has not been limited to Chinese buyers, as demonstrated by the $900m acquisition of the mobile messaging app Viber earlier this year by Rakuten, the Japanese internet services company.
While we believe it would be premature to view these individual transactions as amounting to a ‘wave’, it is clear that East Asian interest has changed the Israeli M&A landscape. The growing East Asian–Israeli business relationship is even more evident when one takes into account trade figures and smaller-scale investments. China–Israel trade amounted to $10bn in 2013, double the figure of five years prior. Several investment funds focused specifically on the China–Israel nexus are now competing for deals, including funds backed by Infinity Group and Catalyst. Chinese businessman Li Ka Shing is said to be Israel’s most active individual venture capital investor with over 13 investments in Israeli start-ups over the last five years.
While cross-border trade and venture investment are important, the headline deals such as Clal and Tnuva bear an outsize influence on the Israeli M&A landscape. Whereas Israeli shareholders might previously have looked to exit through sales to Western acquirers or IPOs, selling to a Chinese acquirer is now part of ownership and senior management’s psyche.
Factors causing the rise in China-Israel M&A
In our experience, several factors serve as both cause and effect in connection with the rise in China–Israel M&A volume. First, Chinese investment into Israel can be seen as part of the wider phenomenon of Chinese overseas investment. In particular, Chinese companies seem to be increasingly interested in technology. This interest matches well with the ‘Start-up Nation’. Second, there are an increasing number of Israeli brokers and other advisers on the ground in China trawling for deals alongside a growing number of Chinese businesspeople with ties to Israel. Finally, Chinese investors have, at least for now, found the Israeli government receptive to inbound investment.
With time, we expect that these factors may well reinforce one another, leading to a more sustained and upward trend of Chinese–Israeli business. Likewise, we expect Israeli investment into China, which is an older but less celebrated phenomenon, to continue. Increased Israeli business into China — if successful — is likely to spur both greater Israeli interest in China, and greater appetite for investment into Israel on the part of Chinese businesses. And so the reinforcing cycle continues.
To be sure, Chinese-Israeli transactions are not without their difficulties. Language barriers, time zones and above all, cultural gaps and different styles of business make getting deals done between China and Israel difficult. The Tnuva transaction provides ample illustration of the point: differing styles of press coverage, labour relations, kibbutz shareholders and required Chinese government regulatory approvals for foreign investment – all of these played a role. These issues can be overcome with goodwill among the parties and with sound advice from seasoned advisers.
While the US and Europe will continue to be more important markets for Israel for the foreseeable future, we expect to see a continued rise in Chinese (and more generally, East Asian) interest in Israeli targets and vice versa.