Israel is again a target for foreign buyers as the country's hi-tech sector flourishes with many innovative small- and medium-sized companies with a high managerial class.
"The corporate environment in Israel has changed in recent years. There are a lot of highly skilled managers and a lot of innovation, the latter of which is scarce in the US," said Giora Yaron, chairman of Mercury Interactive, at a Tel Aviv conference on "Cross-Border Mergers and Acquisitions organized by Morrison & Foerster and Kesselman & Kesselman.
Back in July, Mercury Interactive, which had been caught up in the US options probe that has embroiled dozens of companies, was bought by personal computer giant Hewlett-Packard in a $4.5 billion deal.
"The sale of Mercury to H-P had nothing to do with the options probe at Mercury. The two companies have a lot in common," Yaron said. "H-P approached us and bought the 'Israeli brain' of Mercury and a big customer base."
In connection with the deal, Yaron disclosed that Boaz Chalamish, general manager and vice president of Mercury's research & development operations, would be promoted to a senior position at H-P.
This week also has seen the potential acquisition of two Israeli start-ups by US companies. Data security giant McAfee made its first acquisition in Israel, snapping up of start-up Onigma, while California-based LSI Logic is understood to be in talks to acquire StoreAge, which makes information management, storage and protection systems.
"There is a real managerial class and intellectual culture in Israel, which generates ideas and technology in a fast and efficient way. Today, Israeli CEOs are willing to sell a company and often they will leave an acquired company and start a new company," Bruce Mann, senior partner at Morrison & Foerster and adviser on the Mercury acquisition told The Jerusalem Post. "Within eight or nine days, Giora Yaron will remove his tag labeled Mercury and move on to what he does best - being a serial entrepreneur."
As communication between Israeli and US companies and venture capitals improve Mann said more deals could be expected.
"We might not know much about the whereabouts of companies in Yokneam, but if VCs such as Pitango or Carmel Ventures make an investment in such a company it could be an indication for growth potential. Furthermore, Israelis are increasingly traveling to Silicon Valley and back."
Also speaking at the conference, Aaron Lampert, partner at the Naschitz Brandes law firm in Tel Aviv and a specialist in international M&A, emphasized the importance of the role of the Israeli lawyer in educating a foreign buyer with respect to issues such as regulatory differences and the settlement of employment agreements or severance payments.
"Not dealing with these issues seriously will, most likely, delay the process of the deal and play part in its success," he said.
Investment bankers and lawyers attending the seminar pointed out that in the face of an unpredictable initial public offering market and the high regulatory hurdles of going public, executives at an increasing number of private companies were taking a "dual track" route, whereby a company's IPO and sell-out occur in sequence over a short period of time.
Private dual tracking, which involves companies filing to go public and selling out before the equity offering takes place, also has become increasingly frequent. For instance, a company might file for an IPO, prompting interest from strategic buyers. As a next step, the company could talk with potential acquirers to learn whether going public would provide the best value.
A successful acquisition is a marriage not a takeover
Keys to a successful acquisition:
Don't try and change the culture of the company you are buying
Clear reporting and responsibility structures
Regular communication at all levels including employees
Pay attention to disparity of compensation and benefit levels
Why do acquisitions fail?
Cultural clash (i.e. unfamiliarity with Israeli practices)
Competition for dominance between leaders or teams
Unrealistic performance expectations by buyer
Loss of anticipated synergies due to failure to integrate operations
Unforeseen regulatory delays that destabilize business relationships
(Source: Morrison & Foerster)