Every time we ask a CEO of one of Israel's mid-size or large companies about potential acquisitions, we get the same answer. The wording might differ, and the degree of conviction behind it won't be the same each time either, but the basic gist is always the same. "We're very interested in acquisitions," they always say. "We don't intend to hang on to our cash indefinitely without buying something." Or, "We have other plans for the money, besides earning income on the interest." So what are you interested in, we ask, to which the answer invariably is, "Technologies that complement our solutions," or "take us into new markets," and even "tools that will shorten our time-to-market with new products," or "customer base."
So why don't you buy, you've got the money? "We tread cautiously," is the answer we usually hear. "We don't want to buy just because we can," or "Our shareholders have been telling us that they'd like to see more rapid growth, so we probably will be making acquisitions in the near future, but we won't let our moves be dictated solely by pressure." They usually end their reply by stating, "If we do make any acquisitions we will announce them through the customary channels."
These are the kinds of answers that one generally hears from Check Point Software Technologies Ltd. (Nasdaq: CHKP) chairman and CEO Gil Shwed and CFO Eyal Desheh; Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) president and CEO Shlomo Yanai, and CFO Dan Suesskind; Aladdin Knowledge Systems Ltd. (Nasdaq: ALDN; TASE: ALDN) CEO Yanki Margalit; NICE Systems Ltd. (Nasdaq: NICE; TASE: NICE) CEO Haim Shani; DSP Group Inc. (Nasdaq: DSPG) CEO Eli Ayalon, and many others.
This is not to say that we see an acquisition as a wonder cure for reviving growth. In fact, the rule of usually is that most acquisitions turn out to be a failure. Small and large alike, the statistics on deals are generally poor. But some companies have not made any new technology launches for a long time, and have not penetrated tangential markets, because they did not make any acquisitions. In-house R&D sometimes needs a push from outside, and one such example is Check Point, which a year ago paid $620 million for Swedish company Pointsec Mobile Technologies to gain a foothold in the information security industry - an acquisition that has so far failed to prove its worth. At the same time, it launched its first hardware product, UTM - 1, last February, which was developed in-house and became a high-growth product.
These two moves re-energized Check Point, so acquisitions can often have a positive impetus by driving forward new processes, even if the company has acquired a technology only with no revenue. If a company decides to not make an acquisition, it might do well to think of a creative way of returning money to its shareholders.
2007 was a year of growth for some high-tech companies, in keeping with the trend over the past three to four years. Sub-prime crisis or not, the direction is north. And the way things look at present, 2008 is also likely to be a growth year, with some companies seeings double digit growth.
2008 - Time for mergers
Most mid-size and large Israeli companies now have an abundance of cash with which to support further growth, and almost all of them say they won't hesitate to make acquisitions if they find the right opportunities. Radware Ltd. (Nasdaq: RDWR; TASE: RDWR), Orbotech Ltd. (Nasdaq: ORBK), Verint Systems Inc. (Pink Sheets: VRNT.PK), NICE Systems Ltd. (Nasdaq: NICE; TASE: NICE), Check Point, DSP Group, and Amdocs Ltd. (NYSE: DOX) are the only ones that made acquisitions in 2007. All the rest, despite having the cash and the willingness, didn't get round to it for various reasons. The biggest deals last year were Verint's acquisition of Witness Systems for $950 million, and Check Point's acquisition of Pointsec.
Investment bankers and analysts believe that 2008 will be a year of mergers and acquisitions, on an even larger scale than the year just ended. 2007 began amid much fanfare, and looked like it would be stronger, but then the global credit crunch struck in the summer, triggering a slowdown. Companies preferred to hang on to their cash, in the belief that raising more funding in future would not be that simple. Yet despite this, according to figures published by Thomson Financial, the volume of mergers and acquisitions in the US reached a record $1.57 trillion in 2007.
Market estimates expect most deals in 2008 to have a low debt component, if any. They will be strategic in nature, and will not reflect a desire to expand or take over a competitor, and they are likely to be smaller, and also global. Asian countries, for this purpose, are the prime locations for acquisitions in 2008.
In contrast to the dearth of acquisitions, quite a few Israeli companies themselves changed hands in 2007. These included ECI Telecom, which was sold to consortium headed by Shaul Shani; Nur Macroprinters Ltd. (Pink Sheets:NURMF.PK), which was sold to Hewlett Packard Co. (NYSE:HPQ); Terayon Communication Systems, which was sold to Motorola Inc. (NYSE: MOT); and Taro Pharmaceutical Industries Ltd. (Pink Sheets: TAROF.PK), which was due to be sold to Indian pharmaceutical company Sun Pharmaceutical Industries Ltd. (NSE: SUNPHARMA, BSE: 524715). The only deal that involved private equity was the $1.24 billion paid for ECI by Swarth Group and Ashmore Investment Management Ltd. (LSE:ASHM), which delisted the company and took it private. This deal was overshadowed by the credit crunch in summer, which put its closure at risk.
Published by Globes [online], Israel business news - www.globes.co.il - on January 7, 2008
© Copyright of Globes Publisher Itonut (1983) Ltd. 2008