OpinionTransactions during turmoil: What does a purchase transaction of an Israeli tech company look like during wartime?
Opinion
Transactions during turmoil: What does a purchase transaction of an Israeli tech company look like during wartime?
"The unique situations we were forced and are still forced to grapple with require hard work, creativity and flexible thinking by everyone involved in the deals," writes Einat Weidberg, Partner at law firm Shibolet & Co.
“Together we will win” has become one of the war's slogans. One of the challenges in cross-border acquisition transactions during wartime is seeing how foreign global companies are made part of this unity and despite the anomaly the Israeli market finds itself in, managing to close transactions in the complex reality we are facing.
On November 22nd, in the midst of the war, a deal was signed for the acquisition of the Israeli biomed company, CartiHeal, to the global corporation, Smith & Nephew, for up to $330 million. The law firm of Shibolet & Co. represented CartiHeal in this complex process, which experienced turmoil with the outbreak of the war. We found ourselves receiving instructions from the company’s CEO, Nir Altschuler, while he was volunteering for reserve duty in the communities near the Gaza border with mortars falling in the background. Much to everyone's delight, despite the war, the deal was completed successfully over the past few days.
So, during wartime, how do you manage to complete the sale of Israeli companies, which have most of their activity and presence in the Holy Land, to foreign buyers, including publicly traded companies that must report on the closing of the transaction and that are active in markets, in some of which there is international criticism of Israel for the war?
Intuitively, COVID-19 made us tougher and prepared us, even if only partially, for the current reality. The lack of routine and certainty, the transatlantic distance that is difficult to bridge by flight, and the general depressed mood - all are situations to which we have already become accustomed. But then it was the entire world, and now we are on our own.
Many key leaders in Israeli companies were called up or remain in service. Many of them volunteered for reserve duty and for other civilian volunteer efforts given the war. Additionally, business and negotiating teams which in normal times would come to Israel, hesitated, or were unable to get here. In some cases, we even heard that insurance companies refused to insure their trips to Israel.
In contrast, here we have a desire and a true need to prove that life goes on and that the war has not knocked the Israeli market out. We even made sure to schedule business and negotiation calls for such hours during the day when it was highly unlikely for missiles to be launched against Israel - in Tel Aviv, for example, before 6:00 P.M, or after 9:00 P.M.
We heard a new type of questions during the due diligence process: discussions about the number of employees currently on reserve duty, their anticipated date of discharge, the legal status of reserve service, and even hesitantly - exactly where the key personnel were serving and how dangerous it is there. We needed to respond to questions about how well protected the offices of our customers are and even to describe their physical distances from the country's various borders. Try to explain to Americans that here in Israel 30 kilometers is considered a significant distance, when for them, it’s just around the corner.
In the new reality, companies that receive grants from the Israeli Innovation Authority are having a hard time explaining why it is not reasonable or worth moving the bulk of production or R&D activity outside of Israel.
The conditions for closing deals become more and more concrete: the lack of a “material adverse change,” with all the standard exceptions that we learned to recite by rote, is no longer enough for the buyers, who are trying to understand how they will remotely manage the company the day after, and how they will safeguard themselves against emergencies and hedge the risk. Even obtaining trivial regulatory approvals has become a challenge when the everyday work of the authorities has been disrupted.
Beyond all the business and legal questions, the war also has an additional impact: the human factor, which always played a significant role around the negotiating table, has become even more important. Many organizations in Israel have added new banners to their e-mails in support of the war effort. Here, at Shibolet, a weekly photo of a child hostage, which helped people identify and elicited emotional reactions from people overseas who received it.
The unique situations we were forced and are still forced to grapple with require hard work, creativity and flexible thinking by everyone involved in the deals. It is hard to foresee how mergers and acquisitions activity will continue to be affected by the war and its form as we move forward: are the characteristics we have seen over the past few months here to stay or in the end will we go back to what was previously the norm?
One thing’s for sure, our national pride that despite everything, foreign buyers continue to set their sights on our local market and the statements we have heard over and over again from everyone to the effect that the Israelis are “the most resilient people in the world” is something we need to adopt, and win.
Einat Weidberg is a Partner at law firm Shibolet & Co.
