The merger between tech companies Matrix IT (TASE: MTRX) and Magic Software Enterprises (TASE: MGIC; Nasdaq MGIC) is moving ahead this week with the shareholders of both companies, which belong to Formula Systems (TASE: FORTY; Nasdaq: FORTY, meeting to approve the deal. Leader Capital Markets predicted last week that the merger contains major potential and pointed out that even before the merger has been completed, both stocks have outperformed their benchmarks.
Leader Capital Markets analyst Dina Korshunov notes that since the agreement was announced in March, both stocks have soared. Matrix's stock has climbed by about 69% and Magic has jumped by 91%, while the Tel Aviv 125 index, which includes both, rose by 41% and the Nasdaq, which Magic is also listed on, rose by 35% (however, over the past three years, Magic has underperformed both indices).
The planned move will be carried out through a reverse triangular merger, upon completion of which Magic will become a wholly owned subsidiary of Matrix. The ratio in the merger stipulates that after the deal is completed, Magic shareholders will hold 31.1% of Matrix's share capital, and the remainder will be held by the existing shareholders of the company, led by Formula (which currently holds 48% of Matrix and 47% of Magic). According to Korshunov, the exchange ratio is not expected to change due to the legal complexity.
The notice for the shareholders meeting published by Matrix, included an opinion on the fairness of the deal by Prometheus, and its conclusion was that the conversion ratio is fair and reasonable. According to Prometheus, when examining the economic parameters, in some cases the conversion ratio is better for Magic shareholders and in other cases for Matrix shareholders. For example, in terms of revenue and enterprise value, the ratio is better for Magic, and in terms of operating and net profit and net debt, it favors Matrix.
Leader observes that the merger is expected to close in January 2026, after the completion of a number of technical conditions, as well as the approval of shareholders. According Korshunov, the increase in the value of the companies since the merger has resulted in their combined value now ranking them in eighth place among publicly-traded IT companies in the US, and in third place in Europe (only Capgemini and Indra are larger, but significantly). According to Leader's review, the value of the merged company will be $3.5 billion. According to the analyst, "On completion of the deal, the merger is expected to contribute to improving marketability, increasing exposure to international investors and enabling entry into leading indices, including the Tel Aviv 35."
Synergy and operation savings
Korshunov mentions a number of advantages to the merger including business, marketing and operational synergy, and operational savings, "Due to the implementation of a rigorous management culture that characterizes Matrix." As an example of synergy, she cites the cloud sector: "Matrix has a large and well-established activity in the field, with expansion into Europe, and Magic also has significant activity in the cloud, with a growing presence in the US. Together, the combination of activities is expected to create a strong and growing global business line.
In addition, Matrix's (and Magic's) strategic and unique relationship with Amazon's AWS further strengthens the growth potential in the field." Korshunov adds, "In the US, too, the value proposition to customers and the position of the merged company are significantly strengthened, due to the combination of the professional services that Magic offers together with Matrix's services." According to her, the merger will allow for a significant expansion of the international footprint and a strengthening of the presence outside Israel, particularly in the US, so after the deal is completed, the share of revenue abroad will be 25% (about 17% in the US), compared with 8% for Matrix today.
"Low-risk merger"
Matrix is an IT services provider led by CEO Moti Gutman, and Magic provides services in the field of software development and integration under CEO Guy Bernstein, who also serves as CEO of Formula, the parent company of both Matrix and Magic.
Korshunov observes that the merger is unique and without financing costs, as well as without high depreciation expenses. Since there is no change of control in the transaction, accounting allows it to be completed without depreciation and impairment. In Korshunov's assessment, "The merger has low integration risks, given that the two are part of the same business group in tangential areas of activity."
Magic is currently a dual-listed stock, but the plan is that in the first phase after the merger, the merged company will be traded only on the Tel Aviv Stock Exchange (TASE), and in the future the issue of dual listing will be re-examined. As of today, Matrix's market cap is NIS 9.2 billion, and Magic's is NIS 4 billion.
Published by Globes, Israel business news - en.globes.co.il - on December 9, 2025.
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