The volume of mergers and acquisitions rose 77% to $21.6 billion in 2018, not including Mazor Robotics.
Low-tech industries outperformed high-tech and life sciences industries in the Israeli mergers and acquisitions market in 2018, according to figures compiled by the PwC Israel financial consultant firm. The company's report reviewed mergers and acquisitions by Israeli companies in Israel and worldwide and by foreign companies in Israel in 2018.
PwC said that 2018 had been a peak year for the Israeli economy, with the volume of deals rising 77% to $21.6 billion (before completion of the Mazor Robotics deal), compared with $12.2 billion in 2017 and $16.8 billion in 2016. The report did not include exceptional deals of over $15 billion, and therefore excluded the huge acquisitions of Mobileye by Intel and of Actavis by Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA).
The average deal price rose 88% to $267 million in 2018, but the number of deals dropped from 131 in 2017 to 124 in 2018. In addition to the increase in the conventional industries, the life sciences and pharma industry produced deals totaling $1.3 billion, down from $4.7 billion in 2017.
PwC Israel partner, head of advisory services, and transaction services leader Liat Enzel-Aviel says, "It appears that the decline in the number of high-tech deals is due to continued development by companies in the sector and growth possibilities that are postponing the sale of companies. The fall in the figures for pharma deals resulted from a decline in mergers and acquisitions activity by Teva, which was active as a buyer of companies in 2016 and a seller of companies in 2017.
"Large Israeli companies active in conventional markets with established business in global markets aroused great interest this year among large strategic players, who made major acquisitions in Israel. One of the main reasons is the effect of Israel's image as a nation of innovation, which is spreading from the usual technology sectors into other areas.
"At the same time, companies sold this year had the potential to become flagship companies in the Israeli economy. The question arises of what this indicates about the economy, and whether there is a glass ceiling preventing these companies from developing into Israeli-owned global leaders."
Acquisitions by US concerns rose from $3.7 billion to $12.9 billion this year, despite the US tax reform supporting the return home of US money. The number of deals from East Asia, remained unchanged, but the value of the deals declined.
Uncertainty about 2019
At the same time, she detects a change in the mood among local entrepreneurs, who are not pushing for a quick exit. Another factor is the effect of the US tax reform, which is causing signs of a slowdown in activity outside the US. The regulatory aspect is also influential - if an extension for implementing the Promotion of Competition and Reduction of Concentration Law is not granted, it could potentially result in the sale of assets worth billions of dollars.
What is in store for 2019? PwC believes that factors with conflicting effects are creating uncertainty. "Volatility in the financial markets and predictions of a slowdown in global growth are likely to have a negative impact on deal prices, if the predictions come true. Macroeconomic factors are liable to cause companies' value to plummet, which could make acquisitions more attractive. On the other hand, price fluctuations will be so extreme that that market is likely to reach a standstill, due to investors' desire to reduce their exposure," Enzel-Aviel says.