Private equity investments set a second-quarter record

China, along with other foreign investors, can’t get enough of Israeli tech, according to numbers released by an Israeli research firm

Members of a delegation to the Israel-China Economic Summit at the Knesset in May 2014 (photo credit: Courtesy)
Members of a delegation to the Israel-China Economic Summit at the Knesset in May 2014 (photo credit: Courtesy)

Despite a turndown in international stock markets and growing concerns over the future of the world economy, Israeli tech firms continued to benefit from increased investment, both by local venture capital firms and international players. Private equity investments hit an all-time high in the second quarter of 2015, the Israel Venture Capital research center said Thursday.

According to Marianna Shapira, Research Manager at IVC, “Israeli high-tech companies appealed to many private equity investors, who invested $1.4 billion in capital during the quarter. We’ve observed a rapidly growing interest in local high-tech by investors from around the world. Based on current trends in Israeli high-tech and our conversations with investors, private equity funds believe that Israeli technology sector offers various engagement opportunities.”

A previous IVC report showed that investments in Israeli tech overall – by venture capital funds, private equity groups, and angels – had hit an all-time high in the second quarter. The new report focuses on PE deals, in which funds finance a total buyout of a target company, as opposed to acquiring a partial or majority share in a firm. There were 29 such deals in the second quarter of 2015, worth $1.67 billion, said IVC.

Most of that money – over three-quarters of it – were from foreign PE funds, with the biggest deal in the quarter the $510 million buyout of medical device firm Lumenis by China’s XIO Group.

That’s a trend that is likely to continue, say experts involved in Chinese investments in Israel. According to Andrew Zhang, a consultant who has worked with some of China’s biggest banks and tech firms in seeking out Israeli technology, the recent stock market crisis in China was due to “the realization by investors that the era of rapid growth based on industrial production and government infrastructure spending has come to an end, and right now there is nothing to replace it. The only viable replacement for these growth vehicles is high-tech, and that is one reason China is very interested in Israel.

“I work with several Chinese investment firms as a scout, helping them find Israeli tech firms to invest in, and even in the midst of the stock market crisis, my clients are telling me to go full force and find them good opportunities,” said Zhang. “The Chinese – investors and governments alike – are realizing that a tech economy, like the one Israel has, is their best growth option, and in the coming years, this is going to be good news for both Israelis and Chinese.”

Benjamin Peng, Business Director of Shanghai-based Yafo Capital, which runs a venture capital fund dedicated to investing in Israeli start-ups, agrees. “Chinese companies need the core tech Israel supplies. While some investors may think twice as they consider the impact of the market fall on their own situation, short-term stock market fluctuations will not prevent them in investing in good technology.”

Omer Ben-Zvi, Partner at Shibolet & Co., said that the new numbers emphasize the quality investors are finding in Israel. “The last quarter manifests a continuous growth of the Israeli private equity industry, despite relatively low number of transactions in the previous two quarters. The year’s second quarter demonstrates the stability of the local market with big buyouts alongside a larger number of medium sized deals.

“In addition to the reinforcement of the Israeli PEs activity, we are also seeing a continuing trend of high-tech buyouts by foreign PE funds, further attesting the maturity of the local tech industry and its global integration. Foreign PE funds already active in Israel have been accelerating their deal making for some time now, and new PEs, including Chinese investors, are more and more active. From our perspective of the market, we expect these trends to continue or even increase in the near future, with a growing number of deals by foreign PE investors from the US, China and other countries. We believe such buyouts and PE investment in Israeli technology companies will play an important role in supporting and building the sustainable, stable companies we all wish to see growing in Israel,” he added.

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