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Merger and acquisition activity of Israeli companies skyrocketed in 2005, reaching pre-2000 levels, as an improvement in market conditions and a stronger sense of security and political stability encouraged local and foreign investors.
A survey conducted by research company DealWatch, commissioned by accounting firm KPMG, showed that the value of closed deals quadrupled to $8 billion through the year from $2b. in 2004.
"The high level of uncertainty prevalent in Israel between 2000 and 2004 was greatly reduced this year, which encouraged foreign investors," said Amir Erben, KPMG partner in charge of corporate finance.
The year's M&A activity reached the same level as 1998, which was followed by a record year in 1999 when the value of closed deals reached $9b.
Erben expressed doubt, however, about whether the positive trend would continue into next year's election period.
"The big question mark for 2006 is the elections, the prospects for political stability and the new government's economic policies," Erben said. "Elections usually decrease activity in the market."
In looking to the year ahead, Erben said there were a number of deals in backlog from this year, most notably those involving banks selling their mutual fund units to insurance companies in accordance with the Bachar reforms' requirements.
While Bachar brought about strong M&A activity in the financial services industry, Erben noted that the major deals in that sector had been done and that the focus would now shift to technology companies.
This year also saw a lot of activity from private equity firms, which Erben believes will give 2006 a good start.
"When you look at the big Israel-focused private equity funds like Markstone and Apax partners, there is in excess of $4b. of unleveraged funding which will be invested in Israeli companies over the next two or three years," Erben said.
The survey showed that the computer and electronics sector made up 34% of the number of mergers which took place. The telecommunications industry took 12% of the total; health and medicine had 9%; while the financial sector made up 7%; and real estate the remaining 6%.
It was the telecommunications companies, however, that topped the list of deal makers with Discount Investment Corp. upping its stake in Cellcom by 69% in two separate deals for $1.345b., followed by the government selling its 30% share in Bezeq to Apax-Saban-Arkin for $969 million.
In all, 118 acquisition agreements of Israeli companies which were closed in 2005, representing a 90% rise from the 62 in 2004.
Top 10 Israeli M&A of 2005
1) Discount Investment Corp buys 69% of Cellcom for $1.345b. (Telecommunications)
2) Apax-Saban-Arkin wins tender for 30% of Bezeq for $969m. (Telecommunications)
3) French company AXA SA pays $955m. for 5.6% stake in Teva Pharmaceutical Industries. (Pharmaceuticals)
4) US-based Perrigo Co. buys Agis Industries for $821m. (Pharmaceuticals)
5) The Bronfman Group purchases 26% of Discount Bank for $297m. (Financial services)
6) Partner Communications buys back 17.5% of its own shares for $245m. (Telecommunications)
7) US company UGS PLM Solutions takes full control of Tecnomatics Technologies for $243m. (Hi-tech)
8) Hewlett-Packard Co. buys Scitex Vision for $230m. (Hi-tech)
9) Alony Hetz purchases Amot Investments for $211m. (Real estate)
10) AXA SA gains 5.12% of Bank Leumi for $195m. (Financial services)