Key facts:
- Foreign PE funds lead Israeli PE deal-making, with 80 percent of total capital invested in H1/2016
- 88 percent of all PE investments were made in the technology sector
- Straight equity deals drop 50% in H1/2016
The first half of 2016 totaled $1.6 billion worth of investments in 29 private equity deals, notably below the $2.1 billion closed in 53 deals in H1/2015, IVC and Shibolet report.
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The two largest deals were performed in the second quarter, accounting for 67 percent of total capital investments. The average PE deal in H1/2016 stood at $53 million, a jump from the $39 million average in H1/2015 (Figure).
In Q2/2016, thirteen Israeli private equity deals accounted for $1.3 billion, a jump from the $270 million invested in Q1/2016, but below the $1.6 billion in Q2/2015. The average deal amount climbed to $98 million, the highest quarterly average in the past four years.
The quarterly results were mostly based on two large buyout transactions: the $643 million buyout of Xura (formerly Comverse) by American PE fund Siris Capital, and the $400 million buyout of Sintec Media by Francisco Partners. In comparison, in Q1/2016, no private equity deals passed the $100 million threshold.
In Q2/2016, Israeli private equity funds invested $184 million, or 19 percent of total PE investments. The amount was 55 percent up from the $119 million invested in Q1/2016. The largest deal performed by an Israeli fund in the second quarter was the $90 million buyout of Arena Mall Herzliya, by real estate fund Reality Investment. In the first half of 2016, investments performed by Israeli private equity funds reached $303 million, representing a year-on-year decline.
Foreign private equity funds led in Q2/2016, with $1.1 billion, including the two largest buyouts so far. The share of foreign PE funds increased to 86 percent out of total investments, as compared with Q2/2015’s share of 81 percent.
Omer Ben-Zvi, Partner at Shibolet & Co., observes: “After a weak first quarter, we are happy to see the Q2/2016 scope of private equity deals growing again, as we have previously foreseen. We believe that this is evidence of the overall further strengthening in the local industry. This is especially true in the Israeli high-tech sector, which is producing more and more mature companies that become potential targets for private equity investors. A case in point in the second quarter was the continuous activity of Francisco Partners, a long time player in the Israeli PE market, alongside newcomer Siris Capital Group, which made its first investment in Israel, ” he noted. However, Ben-Zvi mentions that, “obviously, the local PE market is sensitive to macroeconomic fluctuations, such as the US interest rate expected markup and Asian markets slowdown.”
The Israeli technology sector continued to lead private equity investments in Q2/2016, with $1.1 billion invested in eight deals, or 87 percent of total investments. The first six months of 2016 clearly demonstrated private equity investors’ preferences – $1.4 billion, or 88 percent, of all PE investments were made in the technology sector. This was the largest share for this period so far, exceeding even H1/2015’s 76 percent share, when $1.6 billion was invested in the Israeli high-tech industry by private equity funds.
According to the IVC-Shibolet PE Survey findings, straight equity deals performance was considerably down in Q2/2016, as well as the first half of 2016. Only 19 straight equity transactions totaled $204 million (16 percent of the entire amount) in H1/2016, 50 percent down from 40 deals performed in both H1/2015 and H1/2014, when they were the preferred tool by PE funds. The decrease in the number of straight equity deals accounted for the 74 percent drop in the amount invested in the first half of 2016, with a mere $204 million, as compared with the record high $774 million invested in the same period of 2015. The largest straight equity deal in H1/2016 was a $30 million investment in ForeScout, by Wellington, a US-based PE fund.
Marianna Shapira, Research Manager at IVC, explained: “Indeed it seems global economy trends have influenced the Israeli private equity market in the first half of 2016. PE funds have certainly taken a cautious approach to their asset allocation, minimizing risks and sticking to classic PE investment strategies, especially evident in the second quarter, which featured preference for more traditional private equity mechanisms, such as buyouts, and decrease in riskier minority-stake straight equity transactions.”
Israeli private equity investors
According to the IVC-Online Database, 41 Israeli private equity management companies are currently active, with a total of nearly $10.8 billion under management. To date, five Israeli private equity funds raised capital in 2016, closing $1.7 billion in total, with FIMI’s sixth fund of $1.1 billion the most prominent. Three more funds are in the midst of capital raising, targeting an approximate total amount of $600 million.
Figure: Private Equity Deals by Year ($m)
