Chinese buyouts of Israeli tech still rare

China’s Han’s Laser has purchased Israeli laser metrology company Nextec. Terms of the deal were not revealed, but a source in China was quoted by local reporters as saying that the sale was worth “several million” dollars.

Nextec, headed by Danny Shacham, manufactures laser measurement equipment to determine the size and structure of parts and products. The information generated by the equipment is used for manufacturing and process control, replacing mechanical probes to provide highly accurate measurements.

It sounds like a routine deal — Israeli start-up makes a successful, useful product; a foreign company notices, realizes that the Israeli-developed technology can help it get into new markets (Han’s Laser wants to use Nextec’s products to expand into the automotive and aviation markets, according to analysts); the foreign company makes an offer; the Israeli company accepts, and the deal is done.

What’s unusual in this case, however, is the fact that Han’s Laser is a Chinese company. Flush with cash and hungry for technology, China has become an important customer for Israeli technology. Chinese business delegations are a common sight in Tel Aviv, and Chinese companies host booths at tech shows in Israel. A growing number of Israeli companies set up R&D and sales offices in China, partnering with Chinese companies to enter the world’s biggest consumer markets.

In that sense, China is no different from other advanced tech powers, like the United States, and to a lesser extent Germany, France, and Britain. All those countries actively scout Israel for promising technology, and try to make deals with start-ups and established companies alike.

But there’s a big difference; while American, British, French, and German companies are more than likely to make a bid for the purchase of companies they like, offers from Chinese companies like Han’s Laser are few and far between. The biggest deal so far was the buyout of Israeli chemical maker Makhteshim Agan by China National Chemical Corporation (ChemChina) subsidiary China National Agrochemical Corporation in 2011.

There have several other less heralded deals as well; in October, China’s Suncore acquired bankrupt Israeli company ZenithSolar. Last May, Shanghai Fosun Pharmaceutical purchased 95% of Israel’s Alma Laser for some $220 million. In September, China’s Bright Foods confirmed that it was in talks to purchase Israeli dairy producer Tnuva (which is actually owned by European investment firm Apax Partners. And recently, Chinese investment fund Everbright partnered with Israel’s Catalyst Equity Management to invest in Israeli companies that have potential in the Chinese market.

But compared to the M&A activity in Israel by multinationals from the US and Europe, there has been far fewer buyouts than one would expect from an economic powerhouse like China. There are reasons for that, according to China business expert Mepi Frankel.

“There have been potential deals that have fallen through because of different perceptions of the value of the company,” said Frankel, who heads the Israel office of PTL Group, an Israeli-owned company based in China that helps Israeli companies set up operations in China. “Very often the Israelis want to sell, but the Chinese valuate the company for far less than the Israelis do.”

Frankel, who has been with PTL since the company was founded 13 years ago, said he had participated in many such failed buyout talks.

Another issue, he said, is an internal Chinese one; companies there must get government permission to make any foreign investments, and Chinese authorities are generally very conservative when exporting even a small part of the country’s fortune. The government much prefers to bring foreign companies into China as partners, in order to create jobs for locals, as opposed to increasing the bottom line for a company. “It’s much easier for a Chinese company to set up such partnerships, with a foreign company opening an office in China, than for a Chinese company to acquire a foreign business.”

Finally, said Frankel, there is perhaps the biggest roadblock to the completion of such deals. Very often, Chinese and Israeli companies will attempt to directly communicate with each other, but find that they speak very different languages, literally and figuratively.

“That there may be common desire to make a deal is only part of the story,” said Frankel. “Chinese companies do often seek out deals with Israeli companies, but most of the time they do this without the aid of a broker that can help bridge the many cultural gaps between the two sides, and more often than not the deals fall apart. There is a major hurdle in overcoming the business culture gap. Once this gap is overcome, it’s much easier to make a deal.”