from the February 2011 issue

FIMI to raise Israel's largest private equity fund

FIMI managing director Ishai Davidi: I intend to raise $1 billion by the end of the year. After raising $1.25 billion in four private equity funds in 15 years First Israel Mezzanine Investors Fund (FIMI) managing director Ishai Davidi is now planning to raise his largest-ever fund, which will also be the largest-ever private equity in Israel. "I intend to raise $1 billion by the end of the year for the new fund," he said in an exclusive interview with "Globes", discussing his plans for the FIMI V Fund.

"A $1 billion fund suits us. It will enable us to invest at the pace we know, and there could be opportunities in large companies," said Davidi about the planned fund, which will be twice as large is the previous fund raised less than three years ago.

As with FIMI's other funds, the composition of investors in the new fund will likely be divided more or less equally between Israelis and foreigners. Over the years, FIMI has invested $1 billion in 64 companies, and has already sold its holdings in 34 of them.

In 2010, FIMI invested $210 million, and it expects to make $250 million in new investments in 2011. FIMI's best-known investments over the years include Lipman Electronics Engineering Ltd., Tadiran Communications Ltd., Scope Metal Trading and Technical Services Ltd. (TASE: SCOP), Tana Industries Ltd. (Tami 4), and Tefron Ltd. (Bulletin Board: TFRFF; TASE:TFR).

As a private equity fund, FIMI invests in mature companies in two ways: either a buyout, usually with partners; or a financial investment through a unsecured mezzanine loan, including options to sell the shares in the company.

Davidi loves being involved in managing and improving companies, but he is not involved in the mezzanine deals. Nonetheless, most of FIMI's deals in the past year, such as in Tahal Group International BV, Priortech Ltd. (TASE:PRTC), and Raviv ACS Ltd. were mezzanine investments. Davidi says that this was no coincidence.

"It is no coincidence that we made mezzanine financial investments. I think that in some cases, market prices are high, which makes it difficult to acquire control of companies. We don't make deals by force, if the market skyrockets we'll wait for it to come back down," he says.

But if you turn into a company that merely grants loans, why don't you become a bank instead of a fund that turns around companies?

Davidi: "Mezzanine is not like a bank loan. When the returns on these investments arrive, you'll realize this. Mezzanine financing is the best and wisest tool for a company, and makes it possible to bridge differences between the parties over valuation in creative ways."

"In some sectors, prices on the Tel Aviv Stock Exchange (TASE) are a little high, and in some cases, they're very high. On the TASE today there are companies with multiples that do not look realistic to us, risk characteristics that we don't like, and bond raising that we don't care for. There are still opportunities in some companies, but the TASE in some sectors is not cheap." "We're talking about the pricing of specific companies, and less about sectors."

Reprinted from the Israel High-Tech & Investment Report February 2011

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