Private equity investment in Israeli cos plummets

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Only $265 million was invested in 15 deals in the first quarter of 2016, IVC-Shibolet reports in its market survey.

The first quarter of 2016 saw private equity investments in Israel plunge again, with only $265 million invested in 15 private equity deals, according to the latest IVC Research Center - Shibolet & Co. Israeli private equity market survey. The data show a drop in both the number of deals and dollar proceeds, with a 46% decrease from the $488 million invested in 21 deals in the corresponding quarter of 2015 and a 69% drop from $855 million invested in 21 deals in the fourth quarter of 2015.

Contrary to most previous quarters, characterized by at least one deal exceeding the $100 million mark, no private equity deals placed in the first quarter of 2016 managed to reach that amount, keeping the average deal at $17.7 million, lower than 2015’s average. The largest deal in the first quarter of 2016 was the $80 million buyout of Skybox Security by foreign PE fund Providence Strategic Growth.

Israeli private equity funds invested a modest $114 million in the first quarter of 2016, or 43% of investments. This represented a 17% year-on-year decrease from the $137 million invested in the corresponding quarter of 2015, and a 51% decline from the $232 million invested in the fourth quarter of 2015. The largest deal by an Israeli fund in the first quarter was the $40 million buyout by Kedma of Continuity Software, an enterprise applications company.

Despite foreign private equity funds leading investments in the first quarter of 2016 - including the largest quarterly deal, by Providence Strategic Growth - their total investment activity in the Israeli market fell. Foreign PE funds invested $151 million in the first quarter of the year, a 51% year-on-year decline or 63%, and 64% below the $423 million (49%) recorded in the fourth quarter of 2015.

Shibolet & Co. partner Omer Ben-Zvi believes it is too early to point at a continuous slowdown in the Israeli private equity market. He said, "The number of deals, and even more so - the total amount of Israeli private equity transactions closed during the first quarter of 2016 - demonstrate a substantial decrease compared to the quarterly volume we are used to seeing since mid-2014. However, there are positive signs: We have seen an improvement in financial markets in the first quarter, and there are already deals underway we are tracking in second quarter. Other signs include the $1.1 billion closing of FIMI VI in the first quarter of 2016, and the attractive valuations achieved lately by mature Israeli tech companies."

The technology sector accounted for the majority of private equity investments in the first quarter of 2016, with 94% of the deals, as all but one deal focused on technology companies. Fourteen deals garnered $250 million, up 67% from the $149 million (17%) invested in 13 deals in the fourth quarter of 2015. This was 23% down from $324 million (66%) invested in 13 deals in the corresponding quarter of 2015. In the technology sector, deals in software companies led, with five deals accounting for 64%, mainly due to the Skybox ($80 million) and Continuity Software ($40 million) buyout deals

IVC research manager Marianna Shapira said, “We believe there is a connection between investment trends in technology companies and the straight equity investment model we presented. The Israeli high-tech industry is currently faring better than other tech markets around the world, continually offering superb investment opportunities at relatively low valuations. This creates competition on potential technology deals, which challenges Israeli PE funds to adapt and find creative investment models.” She added, “Richer foreign funds are targeting the higher-end deals, particularly buyouts, and Israeli growth-stage VCs target high-tech companies in particular. As a result, Israeli PE funds prefer the direct approach, entering technology deals at earlier stages, using the straight equity model, rather than risk waiting for later stages and more competition to drive valuations up."

Israeli private equity investors

According to the IVC-Online Database, 37 Israeli private equity management companies are currently active, with a total capital of nearly $9 billion under management. Only one Israeli private equity company raised capital in 2016 so far - FIMI - which closed $1.1 billion in its sixth fund. Five additional funds are in the process of raising capital, targeting about $900 million.

Published by Globes [online], Israel business news - www.globes-online.com - on May 9, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

In the dollar we trust
In the dollar we trust
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