25 October 12 13:54–”Fortissimo Capital will take over Phoenicia Israel America (Flat Glass) Ltd.”; “A foreign fund is in talks to acquire Caesarstone Sdat Yam Ltd. (Nasdaq: CSTE)”; “York Capital Management has become a key bondholder in IDB Development Corporation Ltd.”; “First Israel Mezzanine Investors Fund (FIMI) is heading for a takeover of Gilat Satellite Networks Ltd. (Nasdaq: GILT; TASE: GILT)”; “KKR & Co. LP (NYSE: KKR) is in talks to extend a loan to IDB Holding Corp. Ltd. (TASE:IDBH)”. It seems that it is impossible to open the newspaper nowadays without encountering the name of a private equity fund that is planning another big acquisition in the Israeli market.
This is the hour of the private equity in Israel. Over the past decade, there were acquisitions of Israeli companies by private equity funds, but there has been a change in magnitude in the past year, and most of the big acquisitions announced have been by foreign private equity funds.
What is going on? Why are foreign private equity funds pouncing on Israeli companies? Israelis could boast and assert that the economy is in great shape, that there are good companies here, and that private equity fund managers who have a highly developed business sense that spots opportunities in the country.
But reality is different. Private equity funds are simply the only game in town with the will and means to handle such large transactions. It is hard today to find Israeli institutions or investors able to make large acquisitions. The holding companies are paralyzed at best, or on the verge of debt settlements at worst. Regulatory restrictions are preventing Israeli players from expanding, and the big investors face single borrower limits from the banks (in other words, they are near their credit limits at the banks), and without financing, they cannot close the deal. The capital market is frozen and it is impossible to raise money on it. The conclusions of the Committee on Concentration in the Economy blocks potential deals, banning the control of non-financial companies by financial companies, and vice versa.
Although there are still quite a few wealthy and liquid private investors operating quietly in Israel, most of them are uninterested in big acquisitions, especially of public companies. They prefer to sit on the fence for now, especially when the private sector faces piercing public criticism.
Liquid private equity funds are filling the vacuum. They realize that they face little competition and have the wherewithal to exploit the circumstances to acquire companies at bargain prices…Read More>>