Private equity investment in Israel remained low in Q2

dollars  picture: Thinkstock
dollars picture: Thinkstock

Only $412 million was invested down from $1.26 billion in the second quarter of 2016, IVC-Shibolet reports.

Israeli and overseas private equity funds were involved in 19 private equity deals in the second quarter of 2017, investing $412 million, the latest IVC-Research - Shibolet & Co. law firm survey has found. Notably, less deals were performed this quarter compared with the second quarter of 2016 (22 deals) and the first quarter of 2017 (29 deals), a 21% decline from the three-year quarterly average (24 deals). The total invested by private equity funds in the second quarter of 2017 was slightly up from the $396 million invested in the preceding quarter, but significantly lower than the $1.26 billion invested in the corresponding quarter of 2016.

The first half of 2017 saw 48 deals reaching $807 million, the lowest amount invested by private equity funds in three years, compared with $1.52 billion and $2.07 billion invested in the first halves of 2016 and 2015, respectively. Despite the decrease in capital, the number of deals grew 17% year-on-year from 41 deals in the first half of 2016, slightly below the five-year average of 50 private equity deals.

Shibolet & Co. partner Adv. Omer Ben-Zvi said, "Although the number of Israeli private equity deals grew in the first half of 2017, we have not yet seen any mega deals since the beginning of this year, which typically immensely affect the total dollar amount scope. The largest PE deal in the first half of 2017 was the $140 million buyout of R2Net by Francisco Partners, as all other deals during that term amounted to $50 million or less.”

He continued, “Recently the press reported a forecasted $400 million buyout of Francisco Partners' equity in NSO by Blackstone. This joins some other major deals already announced in the third quarter of 2017, such as the $100 million buyout of Tuttenauer by Israeli PE fund Fortissimo, and a $75 million investment by Insight Venture Partners in WalkMe. Israeli private equity market, according to our observation, demonstrates a stable activity and continues to be a steady attraction for overseas private equity firms. We believe that although the market is cautious in terms of valuations, there are great Israeli opportunities for substantial private equity deals to come."

Israeli private equity funds participated in only eight deals in the second quarter of 2017, investing $164 million, or 40% of total PE capital, almost equal to the $161 million invested in the second quarter of 2016, but 46% lower than the $306 million invested in the first quarter of 2017. The number of deals in the second quarter of 2017 was 43% below the five-year average, down from 16 and 10 deals in the preceding quarter and corresponding quarter respectively. AMI Opportunities implemented the largest deal buying 55% of Max Stock for $47 million in a buyout deal in the second quarter of 2017.

Despite the slow second quarter, the IVC-Shibolet survey revealed that Israeli PE funds performed better in the first half of 2017 compared to the first half of 2016, both in terms of deal number (24 vs. 20) and amounts invested ($470 million vs. $271 million). This was mostly due to their successful first quarter of 2017, when the two largest deals were struck - the buyout of Telefire Fire & Gas Detectors by Tene Growth for $76 million and the $50 million buyout of Ace Auto Depot by Kedma.

IVC Research Center research manager Marianna Shapira said, "In the first half of 2017, we observed seemingly contradictory findings in the private equity market in Israel: a growth in the number of deals, combined with a decrease in the amount of capital invested. This stems from two complementary trends - increased deal-making by Israeli PE funds from the first quarter (which, however, decelerated towards the middle of the year) combined with average levels of activity by foreign PE funds (25 deals), as in the past three years - resulted in a higher number of deals."

She added, "In terms of capital investments, foreign PE funds spend noticeably less capital in the first half of 2017 - $337 million, or a 59% decrease from the five-year average of $816 million. This reflected the low buyout activity of foreign PE funds (only one $140 million buyout was registered in the first half of 2017), while, on average, buyout deals involving foreign PE funds are above $300 million per deal. Though Israeli funds performed above their average investment level of the past three years (a 19% increase) in the first half of 2017, the amounts they invested have less impact in terms of total capital investments. The combination of those trends points out that private equity funds apply a cautious investment strategy, preferring dispersing smaller amounts among larger number of deals in the first half of 2017."

According to IVC Research Center's analysis, 41 Israeli private equity management companies are currently active, managing a total of $13 billion in capital, with an estimated $1 billion available for new investments. In the first half of 2017, only Sky Private Equity III closed capital, raising $200 million; five other funds are in the process of raising capital.

Published by Globes [online], Israel business news - www.globes-online.com - on July 31, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

dollars  picture: Thinkstock
dollars picture: Thinkstock
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