Israeli Private Equity hits $3.26 billion in the first nine months – atop the entire 2015’s $3.22 billion

Key facts:

• Q3/2016 Israeli PE deal making 18% below the 2-year quarterly average
• The number of PE transactions decreased 31% in Q1-Q3/2016
• Traditional sector performance down in Q1-Q3/2016 – a 60% year-on-year drop

IVC-Shibolet Private Equity Survey found : in the third quarter of 2016, Israeli private equity deal-making rose to $1.7 billion in 18 deals, the highest quarterly amount in the past two years. The amount was 32 percent above the $1.3 billion reached in the previous quarter and over four times the $358 million achieved in the third quarter of 2015. The number of deals was the same as in the last quarter, but slightly down from the 22 deals quarterly average of the past 5 years.

While the Q1-Q3/2016 period in Israeli private equity can be viewed as having the best performance in five past years – with nearly $3.26 billion invested and exceeding the entire 2015’s $3.22 billion – it was mostly due to the largest buyout of Keter Plastic by BC Partners for $1.4 billion. This single deal accounted for 43 percent of the entire period’s capital proceeds. Actually, the number of deals dropped to 53 transactions in Q1-Q3/2016, as compared to 77 deals in the first nine months of 2015, when the total amount reached $2.44 billion.

Israeli PE funds kept a low profile in the first nine months of 2016: they participated in less deals than in 2015 – 26 transactions in Q1-Q3/2016 versus 47 deals in Q1-Q3/2015, and invested $484 million, or 15 percent of total capital proceeds – a 29 percent year-on-year decrease from $685 million (28 percent).

The two largest deals, above $50 million each, involving Israeli PE funds over this period, were buyout transactions, which accounted for 29 percent of Israeli PE fund investments. The largest deal was the $90 million buyout of Arena Mall by Reality fund in Q2/2016.

Foreign private equity funds led Israeli PE deal-making both in the third quarter and in Q1-Q3/2016, with $2.8 billion invested in 27 transactions. The three top buyouts captured 75 percent of the total capital volume, while the exceptional Keter Plastic deal was the most prominent in five years.

Omer Ben-Zvi, Partner at Shibolet & Co.: “We are experiencing an annual volume increase even before year-end. This figure is highly influenced by single oversized deals, like the Keter buyout, but this is always the case in private equity markets – there are always few very large deals alongside much smaller ones. Rather than a one-off deal, we regard the Keter transaction as a credibility reaffirmation of the local market by the international PE industry. We also saw a quarterly decrease in PE Tech activity, but looking at the recent late-stage VC fund raising expansion in this sector, we do not think the last quarter is indicative of a slowdown trend. Despite the instability in world economy and concerns for a potential slowdown, we believe that the local PE market is healthy and still benefits from a growth potential.” Ben-Zvi explains.

Technology transactions kept their pace in Q1-Q3/2016, with 38 deals that summed up to $1.5 billion or 47 percent of total capital volume, as compared with $1.8 billion (76 percent of total) invested in 40 transactions in the same period in 2015.

However, the traditional industries’ deal-making fell in the first nine months of 2016, with $1.7 billion invested in a mere 15 deals. While the amount reflected the largest, $1.4 billion Keter Plastic deal, the number showed an actual drop from 37 deals performed a year earlier, when traditional industries transactions accounted for $597 million.

Israeli private equity investors

The IVC-Online Database maintains data on 37 active Israeli private equity management companies with a total of $11.3 billion under management. In the first nine months of 2016, five Israeli private equity funds raised $1.72 billion, and three additional funds are currently in process of capital raising.

Marianna Shapira, Research Manager at IVC, states: “There were two major reasons for the drop in PE deal-making in the Israeli market: a decrease in Israeli PE funds’ investments and the drop in traditional industry deal making. However, since the funds seem to have sufficient capital, and are likely to raise additional funding, possibly over half a billion dollars more, by the end of the year, we believe this is a temporary decrease, characteristic of the low-volume of business activity over the third quarter, and expect to see an increase over the few next quarters.”