SECTION 1: Market overview
1.1 What have been the key trends in the M&A market in
your jurisdiction over the past 12 months and what have been
the most active sectors?
The technology sectors, along with the pharmaceutical and
life sciences sectors, continue to lead the Israeli M&A
market in terms of both overall industry-wide deal value and
The autonomous cars sector was particularly active in 2017,
and saw the acquisition by Intel of Mobileye, a global leader
in Advanced Driver Assistance Systems for $15.3 billion; Gett's
purchase of Juno Lab, a ride-sharing platform; Lear
Corporation's purchase of Exo Technologies, a GPS technology
company; and substantial investment rounds in Oryx Vision and
Innoviz Technology, both engaged in a LiDAR technology for
Almost half of all 2017 high-tech exits were in IT and
enterprise software, reflecting the continued popularity of
cyber and cloud technologies.
During the past few years, the Israeli M&A market has
experienced an increase in the overall funds expended by
foreign investors in domestic targets, especially those from
East Asia. However, 2017 saw a drop in the volume of
transactions by East Asian investors – $2.7 billion
compared to $6.4 billion in 2016, which may be attributable, at
least in part, to Chinese regulations on foreign investments.
Foreign investors and acquirers from North America remain the
strongest players, which may reflect Israeli preferences for
the US market.
1.2 What M&A deal flow has your market experienced and
how does this compare to previous years?
The Israeli M&A market is at an all-time high, with
Israel's high-tech exit activity reaching $23 billion in 2017.
Although there was a 7% decline in the number of high-tech
deals from 2016, the value of the transactions increased and
the exits were larger, the highpoint being the acquisition of
Mobileye by Intel for $15.3 billion, the largest high-tech
acquisition and second largest M&A deal in Israel's
It seems that there may be a new trend among Israeli
entrepreneurs towards growing companies and reaching for higher
valuations, rather than quick exits.
In 2017 pharma deals increased. This rise stemmed in part
from the sale by Teva of certain of its assets for $2.5 billion
and the second highlight of 2017 – the acquisition by
Tanabe Mitsubishi Pharma Corporation of NeuroDerm, a clinical
stage pharmaceutical company developing drug-device
combinations for central nervous system disorders, for $1.1
1.3 Is your market driven by private or public M&A
transactions, or both? What are the dynamics between the
The Israeli market is dominated by private M&A
1.4 Describe the relative influence of strategic and
financial investors on the M&A environment in your
There is an abundance of corporate strategic investors,
private equity and venture capital funds investing in and
acquiring Israeli companies, as well as operating incubators,
accelerators and bridge programs. This has led to a mature and
sophisticated eco-system in Israel.
SECTION 2: M&A structures
2.1 Please review some recent notable M&A transactions
in your market and outline any interesting aspects in their
structures and what they mean for the market.
Please see Questions 1.1 and 1.2
2.2 What have been the most significant trends or factors
impacting deal structures?
Many Israeli tech companies secure grants from the Israel
Innovation Authority (formerly known as the Office of the Chief
Scientist) (IIA) which are offered under the Encouragement of
Research and Development Law 1984 (the Encouragement Law). This
financing is favourable as it is repaid on a royalty basis;
however, the Encouragement Law also includes certain
restrictions on the transfer of financed technology and
production outside Israel. Accordingly, a foreign purchaser may
consider buying the target or its assets through an Israeli
entity. In general M&A deal structures are guided by tax
SECTION 3: Legislation and policy changes
3.1 Describe the key legislation and regulatory bodies that
govern M&A activity in your jurisdiction.
The Companies Law 1999, governs all corporate transactions
involving Israeli incorporated companies. The applicable
regulatory body is the Companies Registrar.
The Securities Law 1968, applies to Israeli publicly traded
companies. The applicable regulatory body is the Israel
The Restrictive Trade Practices Law 1988, governs all
competition-related matters, including mergers, antitrust and
restrictive arrangements. The applicable regulatory body is the
Israel Antitrust Authority.
The Encouragement Law (as discussed in Question 2.2). The
applicable regulatory body is the IIA.
In addition, numerous sector-specific laws and regulations
affect M&A transactions, for example government licensing
requirements for encryption, dual-use technology,
telecommunications, mining, essential infrastructure and power
plants. These vary from one deal to another, depending on the
nature of the assets that are being sold.
|NB: Values may exclude
certain transactions, for example asset
3.2 Have there been any recent changes to regulations or
regulators that may impact M&A transactions or activity and
what impact do you expect them to have?
The Law for the Promotion of Competition and Reduction of
Centralisation (2013) (the Centralisation Law) requires that
control groups holding both substantial real assets (e.g.,
retail chains and construction companies) and substantial
financial assets (e.g., banks and insurers) divest and dispose
of one of these two classes of substantial asset by 2019, and
seeks to break down certain pyramid structures of concentrated
entities. Accordingly, the market is expecting non-technology
based large-cap M&A transactions during 2018 as well as
interesting opportunities for buyers, as corporations will be
seeking to sell their assets ahead of the December 2019
In a similar vein in January 2017, the Knesset legislated
that Israel's two largest banks, Bank Leumi and Bank Hapoalim,
had to sell their credit card businesses within three years,
and precluded the sales to large Israeli financial and
non-financial institutions and corporations. Accordingly, we
expect to see foreign private equity funds and money pursuing
these opportunities in 2018.
The Israel Securities Authority has yet to finally settle
the applicability of domestic securities laws to Initial Coin
Offerings (ICOs), however the expectation is that ICOs will not
be exempt from the current securities laws. Accordingly,
certain Israeli entrepreneurs have taken and will continue to
take their ventures off shore to pursue this financing route,
at the expense of the local traditional M&A market.
A recent amendment to the Israeli Income Tax Ordinance from
August 2017 seeks to relax tax requirements on corporate
reorganizations and make it easier to raise funds and make
acquisitions in the tech industry. We imagine this change will
lead to increased M&A activity and corporate restructuring,
including mergers, spin offs and asset transfers.
3.3 Are there any rules, legislation or policy frameworks
under discussion that may impact M&A in your jurisdiction
in the near future?
The Capital Markets, Insurance, and Savings Authority seems
to be hesitant in approving the purchase of Israeli insurance
companies and financial institutions by Chinese buyers. Two
proposed M&A deals did not obtain the requisite regulatory
approvals last year, the first being a sale of Delek's 52%
stake in Phoenix to Yango Investments, China (which Delek also
previously failed to sell to Fuson (China)) for NIS2.15 billion
($624 million) and the sale of Meitav Dash Investments to the
There is a bill currently under consideration in the Knesset
to amend Israel's antitrust laws. One of the proposed
provisions is to raise the threshold required for approval by
the Israel Antitrust Authority for a merger, from total sales
of the merging parties from NIS150 million to NIS360 million.
If this law passes it would create more flexibility in the
SECTION 4: Market idiosyncrasies
4.1 Please describe any common mistakes or misconceptions
that exist about the M&A market in your jurisdiction.
While Israel is a dynamic, exciting tech hub, engaged in the
current popular trends of fintech, GPS, IoT, robotics,
augmented reality, cyber security, life sciences, medtech
(medical technology), autonomous cars and much more, it would
be a mistake to think technology is all that Israel has to
offer. In light of the Centralisation Law, the next year should
see exciting M&A deals in the more traditional markets.
In addition, while Israel is viewed as a hotbed of
opportunity for foreign investment, there is also outbound
activity, with Israelis engaging in M&A abroad. For
example, in 2017 Delek Group acquired the Canadian company
Ithaca Energy for $590 million and Keter Group acquired the
Italian company ABM Italia for €400 million ($493
4.2 Are there frequently asked questions or often
overlooked areas from parties involved in an M&A
Foreign strategic buyers of Israeli tech companies, which
intend to ultimately transfer the intellectual property of the
target company outside of Israel, should be careful not to
overlook the subsequent tax implications. They should seek
advice to avoid the double tax exposure famously incurred by
Microsoft in 2017 in connection with its acquisition of the
Israeli start-up Gteko in 2006.
4.3 What measures should be taken to best prepare for your
When negotiating an M&A transaction it is key to give
attention to Israel-specific issues for example, rigorous and
very pro-employee Israeli employment law and the recent wave of
employee unionisation, the terms of grants and benefits under
the Encouragement of Capital Investments Law 1959 and the
Encouragement Law, and restrictions on the export of encryption
technology. Understanding these idiosyncrasies will allow
investors to structure their investment more wisely and
SECTION 5(a): Public M&A
5.1 What are the key factors involved in obtaining control
of a public company in your jurisdiction?
Israeli takeover rules mandate the need for a tender offer
when the first shareholder passes the 25% or 45% holding
threshold in a public company. Acquiring full control of a
public company is usually achieved by way of a reverse
triangular merger, which requires the approval of a simple
majority, however it is subject to an assessment remedy whereby
the minority shareholders can challenge the consideration to be
In general, the local public market is characterised by
closely held companies controlled by majority shareholders, so
hostile takeovers are uncommon, with a notable exception being
the struggle at ADO Group in 2017.
5.2 What conditions are usually attached to a public
Most public takeover offers are executed by way of reverse
triangular mergers, involving an acquisition of all the
outstanding shares of the target company in exchange for a cash
payment. The main advantage of this route is that merger
transactions only require approval by a simple majority at a
shareholders' meeting (other than in special circumstances).
This is compared to the full tender offer route, which requires
obtaining consent of 95% of shareholders. However, mergers may
be subject to assessment claims by dissenting shareholders.
5.3 What are the current trends/market standards for break
fees in public M&A in your jurisdiction?
Break-up fees in public M&A are rare.
SECTION 5(b): Private M&A
5.4 What are the current trends with regard to
consideration mechanisms including the use of locked box
mechanisms, completion accounts, earn-outs and escrow?
In Israeli M&A, part of the consideration is typically
held in escrow to guarantee the seller's representations,
warranties and obligations under the transaction documents. In
Israeli high-tech deals where entrepreneurs are being bought
out, part of the consideration is also customarily held back
and payable as an earn-out, subject to achievement of certain
financial or technical milestones. This is particularly true in
early Israeli high-tech exits, where the underlying technology
is not always ripe or proven.
Israeli acquisitions often include purchase price adjustment
mechanisms in the event that the financial assumptions on which
the purchase price was determined prove incorrect.
5.5 What conditions are usually attached to a private
In a private acquisition, the buyer typically demands that
the sellers undertake not to compete with the target or solicit
its suppliers, customers or employees, and that the sellers
waive all claims against the target and are bound by
confidentiality undertakings. The buyer also asks that key
employees enter into new employment agreements as a condition
to closing, in an effort to retain key talent. On the other
side, the sellers often ask that the target or buyer maintains
a directors and officers tail insurance policy.
5.6 Is it common practice to provide for a foreign
governing law and/or jurisdiction in private M&A share
If the purchaser is a foreign entity, it will often insist
on a foreign governing law and/or jurisdiction clause in a
private share purchase agreement.
5.7 How common is warranty and indemnity insurance on
private M&A transactions?
Warranty and indemnity insurance is very rare in Israeli
5.8 Discuss the exit environment in your jurisdiction,
including the market for IPOs, trade sales and sales to
In addition to the negative trends affecting the global
initial public offering markets, the Tel Aviv Stock Exchange
(Tase) remains unattractive to local high-tech companies
seeking to raise equity capital at attractive valuations (of
the 13 Israeli high-tech IPOs in 2017, only three were on
Tase). Consequently, M&A deals remain the preferred exit
route for Israeli tech companies.
However, in general we saw an increase in companies listing
on Tase, from three in 2016 to 20 in 2017 raising approximately
SECTION 6: Outlook 2018
6.1 What are your predictions for the next 12 months in the
M&A market and how do you expect legal practice to
Blockchain technology and the autonomous car space will
continue to be fertile ground for investments and M&A deals
We expect to see large-cap M&A transactions and
attractive opportunities for foreign private equity funds and
money, deriving rom the Centralisation Law and legislation
seeking to break up the banks and credit card companies.
The public markets seem to be recovering from the shock of
2016 and proving to be a real alternative to the M&A route,
and we expect to see an increase in IPOs on Tase this year.
Tel Aviv, Israel
T: + 972 36400600
F: +972 36400650
Ariella Dreyfuss, originally from England, advises
international and Israeli clients, including PE funds,
VCs, corporate ventures, entrepreneurs and start-ups in
the high-tech fields of IOT, communications, life
sciences, medtech, internet, fintech, cyber-security,
adtech, arts etc., as well as in low-tech
From incorporation through to exit, Dreyfuss
skilfully guides companies in drafting and negotiating
multi-layered corporate and commercial agreements,
establishing strategic partnerships, raising capital,
consummating complex mergers and acquisitions, all the
time considering each companies' unique commercial
Dreyfuss has been endorsed by the prestigious
ranking guide Chambers & Partners as one of
Israel's leading lawyers in the field of
Corporate/M&A High-tech (Chambers Global 2016 and
Managing Partner, Barnea
Tel Aviv, Israel
Micky Barnea is the Managing Partner of Barnea. His
diverse practice encompasses corporate, securities,
technology, and cross-border matters.
Micky has earned an excellent reputation working
with private and public companies on securities
offerings, fundraising, M&A transactions, transfers
of control, and reorganizations.
Micky is also greatly respected as a legal advisor
to public companies trading on both Israeli and foreign
stock exchanges, as well as to foreign investors with
stakes in Israeli publicly-traded companies.
In the technology sphere, Micky counsels a variety
of early- and later-stage companies, as well as leading
venture capital, corporate venture, and private equity
investors. He also manages prominent cross-border
technology-related transactions. These transactions,
usually focused on intellectual property issues, span a
variety of industries, including fintech, artificial
intelligence, life sciences, internet, financial
services, and advertising.