A startling Jerusalem Post headline, “Exit Nation? 95% of Israel start-ups sold
abroad” (June 4), is a clarion call for the Israel Securities Authority
“In 2012, Israeli hi-tech companies raised only 27% of their funds
from local venture-capital funds, while the rest came from abroad or other
sources,” according to the new report.
Just when infant Israeli companies
take their first steps, they hold the hand for stability and reassurance of
towering, sometimes fatherly looking, foreign corporate executives with bulging
wallets, not Israel venture-capital funds or banks.
Eight days after this
ominous report, the paper confirms, “It’s official: Google gets its Waze” for
$1.1 billion. A month earlier, Berkshire Hathaway paid more than $2b. for
remaining shares in Iscar after spending $5b. for 80 percent of the company in
2006. Other M&A snippets can be found in the Post’s June 12
Buyers have created a culture of aleatory sugarplum dreams in
Israel. Start-up company founders and investors hope to sell their companies,
making them wealthier beyond their wildest imaginations. One company CEO and
founder of a new software company interviewed me to be his general business
manager. He repeatedly whispered to me throughout the meeting, “This company is
going to be worth billions of dollars,” and it wasn’t four years old. It has no
sales and is running down first-round money raised from family, friends and
personal savings. The pervading culture in Israel’s start-up community is one of
here and now, grab market share, hold it for as long as you need to and sell for
as much as you can.
Cash is the sweet ingredient of M&A. The
worldwide economic struggles appear to be under control and economies are
stabilizing. Stock markets are zooming, corporations sit on mountains of cash
and survivors trimmed the fat, leaving glowing bottom lines and balance sheets.
A keystone of buyout corporate culture is it is easier and cheaper to buy assets
than build them. In times like these, of cheap money, some business leaders pay
premium prices for building corporate assets through acquisitions. The low value
of the dollar, low interest rates and bonds yields, and low inflation, make
corporate assets very attractive even at these prices. Some are borrowing
heavily to buy, but acquisitions will fail if they do not make business
This confluence of factors makes foreign buyers and Israeli
sellers happy to swim in the same pool. We have yet to hear about a hostile
takeover in this environment.
Peter Drucker identified five simple rules
for successful acquisitions decades ago (The Wall Street Journal, 1981):
First, know what the buyer can do for the acquired company, not visa versa.
Money is not enough. Management expertise, market savvy and technology are all
• Second, there must be a common core of unity between the
two companies. Drucker suggests these include shared markets, technology or
production process. They must share a common culture through experiences,
expertise and common language.
• Third, an acquisition can only be
successful if the buyers respect the product, markets and customers of the new
company, and there is a “temperamental fit.” Pharmaceutical researchers and
biochemists are concerned with health and disease. Pharmaceutical companies
acquiring cosmetic firms made the serious staffs of the former sour on the
frivolous products, markets, customers and researchers of the latter.
M&A is not all about the deal to impress board members and media.
Fourth, the acquiring company must provide top management within a year of
purchase because they are not buying management. Integrating the two companies
might work, but not always. Warren Buffett, an investor (not a titan of
industry), leaves the management in place of companies he acquires; he rarely
intercedes in the operations and lets them run practically as
• Fifth, management people in both companies receive
substantial promotions from one company to the other. This creates the vision
that their personal opportunities are enhanced.
Carly Fiorina, former CEO
at Hewlett-Packard, warns that “fear is a principle motivator in business.
People fear change.”
They must be made to feel secure in the new company,
and positive reinforcements must come throughout the first year of
The report to ISA warns of the loss of jobs and economic
vitality in the exit nation. Mellanox plans to delist from the Tel Aviv Stock
Exchange and trade on the NASDAQ Stock Market.
No target is too small for
takeover. Tiny Beeologics, begun in Israel, was acquired by agriculture behemoth
Acquisitions are bleeding the economy white. Politicians are
not rushing to slow the drain because the windfalls to the Treasury from sales
of companies can be staggering. Globes reported that Prime Minister Binyamin
Netanyahu telephoned Waze CEO Noam Bardin to congratulate him for putting
“Israeli technology on the global map.” In a gleeful sounding follow-up, he
said, “You are also contributing to state coffers, which is welcome at this
In the end, it is all up to the sellers. Stay for the long haul or
haul the money away. Dr. Seuss wrote just the right scenario: “You have brains
in your head. You have feet in your shoes.
You can steer yourself in any
direction you choose. You’re on your own, and you know what you know. And you
are the guy who’ll decide where to go.”
While buyers will woo and cajole,
“You’re off to Great Places! Today is your day! Your mountain is waiting, So...
get on your way! Oh, the Places You’ll Go!” Dr. Harold Goldmeier is the managing
partner of Goldmeier Investments LLC and an instructor of business and social
policy at the American Jewish University in Tel Aviv.