Israeli industrial companies are expanding overseas, taking advantage of the global slowdown in the first half of 2012 to buy 40 small and medium-sized companies in Europe and India., a survey by accountancy firm BDO Ziv Haft has found. BDO Ziv Haft described this level of overseas activities as "exceptional" bearing in mind that in all of 2011 there were only 20 such acquisitions by Israeli industrial companies overseas.
"We are talking about an astonishing number of deals," said Doron Stein, a partner in BDO Ziv Haft's industry and trade cluster. "The debt crisis in the euro bloc is creating opportunities for Israeli companies and they are exploiting them."
The survey found that 30 of the acquisitions of small and medium-sized businesses in the first half of 2012 were signed in Europe, mainly in the electronics and metals sectors. In India most of the acquisitions were in the agricultural and water sectors.
The size of the acquisitions in Europe range between €2 million and €10 million and are "bargain buys" of companies that have lost 20-30% of their equity value.
Stein said, "This is an attractive situation for Israeli companies because the level of profitability of the companies in Europe has fallen following the debt crisis and their profit margins began to be eroded during the 2008 recession and that pushed down prices."
An analysis of the deals by Stein finds that the main investments by Israeli companies are in specialist products factories manufacturing custom-made, short-series order, or niche products. In most acquisitions, the Israelis take a major shareholding of up to 50%, keeping the option of acquiring a controlling core a year or two after the initial deal. Israelis prefer the local management to continue because of their familiarity with their domestic market.
Stein said, "We are talking about companies that do not have annual revenue above €5-60 million. They are privately held, having problems with the slowdown, and looking to sell holdings."
He added, "Nothing can be taken for granted and these are figures that took solely about the first half of 2012. I'm not prepared to commit and say that this trend will continue in the coming months because the economic slowdown is hitting Israel too."
BDO also found that over the past two years Israeli food companies have discovered Georgia by investing in farms for crops used to manufacture food locally for marketing in Georgia. Four companies have made such investments says BDO and taken advantage of a range of incentives offered by the Georgian government. These benefits include up to 75% discounts on land, making investments very attractive.
Stein said, "We are talking about companies that have built up a lot of know-how in Israel and opened up in Georgia when the communist era has ended. They set up farms and grow what they need for production in local factories."
Published by Globes [online], Israel business news - www.globes-online.com - on August 6, 2012
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