Israel M&A activity surged 34% to $16.8b in 2016 — PwC

While US investors were sidelined, investment from China jumped; Trump policies may cool M&A market, report says

Shoshanna Solomon was The Times of Israel's Startups and Business reporter

Illustrative photo of Israeli shekels. (Sophie Gordon/Flash90)
Illustrative photo of Israeli shekels. (Sophie Gordon/Flash90)

Mergers and acquisition deals in Israel surged 34 percent in 2016, totaling $16.8 billion, accountants PWC said in their 2016 Israel M&A report. The acquisition of Allergan Generics by Teva Pharmaceutical Industries Ltd., which was not included in the PWC data, would have added $39 billion to that figure, the report said.

The data shows a year-on-year increase of 41% in the value of the average deal, while the number of deals closed increased for the first time in five years, recording a 25% growth year on year, or 120 deals vs. 96 deals last year. Concurrently, large-value deals were significantly more prominent in 2016, with 32% of deals — and 44% out of the inbound foreign investments — closed above $100 million.

“The sharp increase in overall deal value and the 41% upsurge in average deal value year on year point to a vibrant Israeli M&A market, available capital and the continued trend of deals conducted in respect of more mature companies than in the past,” said Liat Enzel Aviel, partner and head of transaction services at PwC Israel. “The low interest rate environment combined with the market players’ cash reserves are the main drivers of the growing M&A activity, especially in light of the weakening alternative investment channels, particularly the withdrawn IPO market.”

Enzel Aviel forecast that companies will “continue to be aggressive” in the M&A market and the global expansion of tech activity will continue to be a growth engine for M&A activity, with Israeli companies involved both as acquirers and targets. “The never-ending need to innovate, competitive pressures and consumer power are all expected to keep M&A a leading option for many investors,” she said.

Liat Enzel Aviel, Partner and head of Transaction Services at PwC Israel (Courtesy)
Liat Enzel Aviel, Partner and head of Transaction Services at PwC Israel (Courtesy)

According to the study, the overall deal value of foreign investors’ incoming activity to Israel shot up by 71% in 2016 from 2015, as total investments grew to around $11.1 billion from around $6.5 billion in 2015. And whereas US investors stayed largely on the sidelines this year, buyers from the Far East and especially China increased their activity in Israel, with nine deals totaling $6.38 billion, six of which were by investors from China. This represents a 3.5-fold increase from 2015, the report said. US investment in Israel declined 41% from last year, to a total of $1.76 billion.

Looking ahead, the economic policies of US President-elect Donald Trump could “hit” the M&A market, Enzel Aviel warned. These policies “are expected to give less tailwind to globalization, and may make investments by US funds and corporations in foreign markets less attractive,” she said.

At the same time, the Chinese authorities are also considering imposing restrictions on outbound investments to support their currency. “Another factor that can cut the number of deals, especially regarding the tech sector, is the potential revival of the IPO market in 2017 – which might encourage some companies to opt for a public offering rather than M&A,” Enzel Aviel said.

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