Israel M&A deal value hits 9-year low as Hamas war, judicial overhaul deter investors
Value of deals slumps by 46% to $9.8 billion as foreign investments fall 41% in a year of political uncertainty over changes to the courts and amid Hamas war, PwC Israel data shows
Sharon Wrobel is a tech reporter for The Times of Israel.
Merger and acquisition deals in Israel this year slumped in value by almost half to $9.8 billion, the lowest figure since 2014, as uncertainty over the government’s planned judicial overhaul and the outbreak of the war with the Hamas terror group kept investors away, a new report by consultants PwC Israel shows.
The volume of transactions that closed during this year shrank from $18 billion in 2022, according to the PwC Israel 2023 Mergers & Acquisitions report published Wednesday. The report summarizes the number of Israeli firms involved in merger and acquisition deals, both local and foreign.
In 2023, the number of deals dropped 23% to 110 compared to last year, marking the lowest count since 2015, with the average value of the deals declining to $131 million from an average of $202 million last year. This year’s deal included the $3.6 billion acquisition of Israeli-founded cybersecurity firm Imperva Inc. by French aerospace and defense electronics group Thales.
2022 was already a tough year for Israel’s tech industry, as the specter of rising interest rates, a global stock market fall and tech layoffs led to a sharp slowdown in investments. As 2023 began, local political uncertainty around the contentious judicial overhaul pushed foreign investors into a wait-and-see position about dealmaking. Tech firms saw exits jump by a staggering 520% in 2021 to $82 billion in value, shattering all previous funding records.
Now with Israel more than two months into a war with Hamas, many local startups are struggling to initiate dealflow and attract investments, in particular from foreign investors, while major deals will likely not happen.
Thousands of tech workers and startup founders have been mobilized among the more than 350,000 reservists called up after the shock Hamas assault on southern Israel on October 7, which killed 1,200 people, most of them civilians, and saw at least 240 abducted to Gaza.
“The downward trend of acquisition and merger deals in the Israeli market is stronger than in the rest of the world, which we attribute to a large extent to the political and social uncertainty that prevailed in Israel during 2023,” said Liat Enzel Aviel, partner and head of M&A Services at PwC Israel. “It is evident that foreign investors were afraid to make acquisitions in Israel during the period and it appears that they refrained from investing and doing business in the local market.”
The lion’s share of transactions involving foreign investors plunged 41% to some $6.7 billion in 2023 versus last year due to the political uncertainty wrought by the proposed judicial overhaul and then the outbreak of the war, which slowed down dealflow.
PwC data showed that in the first three quarters of the year, the volume of investments by foreign investors nosedived by 67% compared to the same period in 2022, a drop that was significantly steeper than in the global M&A market trends, suggesting it was driven to a large extent by the political and social instability created by the judicial reform in Israel, according to the report.
US buyers, similar to previous years, closed the highest number of transactions with a total of 38 in 2023 among foreign dealmakers, down from 50 deals last year. During the same period, transactions by European buyers numbered 10, accounting for 19% of total deals, which was up from the 9% share in 2022.
The high-tech sector this year continued to lead the merger and acquisitions activity, recording deals totaling $8 billion this year and making up 80% of all transactions in 2023.
With the Hamas war ongoing for more than two months and uncertainty around its extent and duration, Enzel Aviel expects the local market in the short term to continue to show excess weakness relative to global trends.
“Most of the transactions that reached the closing stage were closed despite the war,” said Enzel Aviel. “At the same time, initial or first contacts to kickstart transactions these days are taking place at a slower pace, which will affect the scope of closing transactions in the first and second quarters of next year.”
Looking further ahead into 2024 and amid growing projections that interest rates will start to fall, PwC sees the local M&A market recovering, mainly driven by dealflow involving high-tech companies and research and development companies.
“There is still a lot of money in the market, both among Israeli and foreign companies and among financial entities that are waiting for attractive opportunities and the continued decline in valuations,” said Enzel Aviel. “Despite the negative trends and effects, the demand and need for technology and innovation have not been harmed and are even increasing over time in the face of global challenges, among others in the areas of artificial intelligence, cyber, energy, medicine, fintech, and more.”
