The stock market rally in 2013 boosted the average price of merger and acquisition deals in Israel to $90 million, 48% higher than in 2012. Even though the number of deals fell, the aggregate total rose 5% to $8.3 billion, says PwC Israel Kesselman & Kesselman. Since the values of some deals were not disclosed, they were excluded from the calculation of the average price.
"The average transaction price was influenced by the stock market rally, and because buyers are now seeking more mature companies, which naturally cost more," pwc Israel Consulting Group partner Liat Enzel-Aviel told "Globes". "In the past, the focus was on young technology companies with promising technologies, but now buyers want to be more certain that the technology is not just a dream."
As the head of PwC Israel's transaction services, Enzel-Aviel works with serial buyer Frutarom Industries Ltd. (TASE: FRUT; LSE:FRUT; Bulletin Board: FRUTF), Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA), Israel Chemicals Ltd. (TASE: ICL), Mellanox Technologies Ltd. (Nasdaq:MLNX), and other companies.
Enzel-Aviel says the rise in the average transaction price also widened the gap between buyers' offers and sellers' asking prices, which was one of the reasons for the 27% drop in the number of deals from 165 in 2012 to 120 in 2013. "We're seeing many cases of differences between the buyer's valuations and the seller's asking price," she says. "Another reason for the fall in the number of transactions is that there is still uncertainty in the markets, which causes buyers to hesitate."
"Globes": In addition, in 2013, the option of an IPO emerged, instead of seeking a buyer.
Enzel-Aviel: "Correct. There is a dilemma whether to sell or hold an IPO, and there is the question which way companies will go in 2014. I still think that there are enough companies for which the option of being bought is better for them, but everything turns on the price."
PwC Israel found that strategic buyers made 87% of the acquisitions in 2012-13, with most of the deals in high tech and the life sciences. Acquisitions in high tech totaled $5.4 billion in 2013 (including the acquisitions of Waze, Trusteer, and Retalix), and the average price was $168 million.
Foreign investment boosted the proportion of large deals of $400 million from 2% of all acquisitions in 2012 to 7% in 2013.
While foreign investors expanded their activity in Israel, local investment by Israelis fell 56%, compared with 2012, to $755 million in 2013. However, if the exceptional acquisition of Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL) in 2012 is excluded, the value of acquisitions by Israelis was down 10% in 2013.
Israeli money found other channels: mergers and acquisitions by Israeli companies of foreign companies totaled $1 billion in 2013, 42% more than in 2012. The largest deals were in real estate and tourism by Alony Hetz Property and Investments Ltd. (TASE: ALHE) in the US and by Fattal Hotel Management Ltd. in Germany.
The PwC Israel figures point to another interesting development: the decline of private equity funds. Their share of financial investments fell from 70% in 2012 to 18% in 2013. Insurance companies and other investment institutions were responsible for most financial investments in 2013.
"Competition from foreign investors and rising prices caused private equity funds to sit on the fence. There is also the factor of cycles in investment, and 2012 was a very active year," says Enzel-Aviel. "I believe that private equity will make a comeback in 2014 and play a bigger role."
What else do you expect in the coming year?
"We assume that the market will continue to be stormy, for several reasons. The Israeli market has companies with liquidity problems and they will have to sell assets. Implementation of the Business Concentration Law will also have an effect. At the same time, the US economy is improving, and since most foreign investors are Americans, they will continue to come. The Israeli market continues to be very interesting, and there are many companies with breakthrough technologies.
"As for Israeli investors, we expect the trends of 2013 to continue, and a slight rise in domestic investment, but there is no doubt that we will continue to see Israelis heading abroad to buy foreign companies. Israeli companies now have much more sophisticated and courageous managers for whom the market is too small, and to grow and diversify risks the leave and invest overseas.
"The interest rate environment forces financial investors to seek other investment channels, and the wish to diversify risk also causes them to increase their foreign investment in various sectors, including real estate."
Besides technology, what will be the hot sectors for mergers and acquisitions in 2014?
"The Israeli market has a lot to offer besides high tech and biotech, and I assume that we'll see investment in other industries, such as retail and manufacturing, partly because of the Business Concentration Law. I think that foreign investors will have very interest targets in these sectors."
Published by Globes [online], Israel business news - www.globes-online.com - on January 8, 2014
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