from the December 2010 issue

Summary of Israeli Private Equity Deals - Q3 / 2010

A total of eight private equity (PE) deals were closed in Israel in Q3 2010, representing an aggregate deal value of $277 million. This is a 90 percent increase from Q2 2010's eight PE deals with an aggregate value of $146 million. Third quarter 2010 figures were 54 percent above the $180 million reported for the 13 private equity deals concluded in Q3 2009 (Figure 1).

In the third quarter of 2010, private equity deals valued at over $50 million accounted for 66 percent of total aggregated deal value; deals valued at $20 million to $50 million accounted for 16 percent; and deals valued at under $20 million accounted for the remaining 18 percent. In the second quarter of 2010, as well as in the third quarter of 2009, all deals were valued at under $50 million each.

In Q3 2010, cleantech - the most attractive sector for private equity funds - represented 43 percent of total deal value. The infrastructure sector followed with 27 percent, and then the retail sector with 16 percent. In the previous quarter, real estate attracted 56 percent of capital invested, followed by semiconductors with 24 percent, and the retail sector with 9 percent. In Q3 2009, the most attractive sector was real estate with 25 percent of total deal value, followed by industrial technologies with 19 percent and life sciences with 17 percent.

The average deal value in the third quarter of 2010 was $35 million, compared to $18 million in the previous quarter and $14 million in the third quarter of 2009.

Israeli Private Equity Deal types
Straight equity investments accounted for 50 percent of total deal value in Q3 2010, with five deals valued at $137 million. This compares to the $57 million (three deals) of Q2 2010, and the $164 million (10 deals) of Q3 2009. In Q3 2010, the average straight equity investment was valued at $27.5 million, compared to $19 million in Q2 2010 and $16 million in the third quarter of 2009.

One buyout valued at $75 million represented 27 percent of the aggregate deal value in Q3 2010, which compares with $48 million or 33 percent in Q2 2010 and $6 million or 3 percent in Q3 2009.

One mezzanine financing accounted for $50 million, or 18 percent of the aggregate deal value, compared to $7 million (two deals) or 5 percent in the previous quarter, and $10 million (one deal) or 6 percent in Q3 2009.

One distressed debt deal accounted for $15 million, or 5 percent of the aggregate deal value, compared to $34 million (two deals) or 23 percent in the previous quarter. No distressed debt deals were reported in Q3 2009.

According to Rick Mann, Managing Partner of GKH, "this year has seen strong investment activity among Israeli private equity firms. We are now seeing indications that foreign private equity funds are once again actively considering PE investments in Israel. Historically, foreign funds consider relatively large investments so that may lead to growth in deal size in the coming quarters." In the first three quarters of 2010, the five largest Israeli private equity deals accounted for 40 percent of aggregate deal value. Tene closed a buyout of thermostat manufacturer Fishman Thermo for $85 million. Israeli Infrastructure Fund (IIF) followed with a buyout of toll highway operator Derech Eretz for $75 million. Ergasol's $58 million deal with solar systems installer Inbar Solar was the third largest. FIMI closed a $50 million mezzanine financing with civil engineering company Tahal, while Beresheit and KCPS completed a $48 million buyout of Mishkenot Clal, an operator of residential centers.

Israeli Private Equity Funds
"Currently, there are 27 active Israeli private equity funds, with total managed capital standing at $6 billion in 2010," observes Marianna Shapira, Research Manager at IVC Research Center. "Three new Israeli PE funds were established both in 2010 and in 2009. Among the active funds, eight are fully invested, but continue to manage their portfolio companies. There are five typical types of financing in the Israeli private equity arena: buyouts, mezzanine, distressed debt, turnaround/ distressed equity and straight equity reviewed in this survey," concluded Shapira.)

Reprinted from the Israel High-Tech & Investment Report December 2010

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