Private equity investment in Israel plummets by 33% in 2023
Private equity investment in Israel plummets by 33% in 2023
According to the year's summary by accounting firm Deloitte Israel, the volume of transactions was $3.5 billion, reflecting a 37% drop compared to 2022. In addition, the number of M&A transactions plunged by 23% to 157 and their volume shrank by 30% to $15 billion
A collapse in mergers and acquisitions in Israel in the second half of 2023 and the flight of investment funds (private equity) are among the main insights from the year's summary of the consulting and accounting firm Deloitte Israel. The entire last year was one of the worst in the field, continuing the negative trend that began in 2022. The number of transactions plunged by 23% to 157, and their volume shrank by 30% to $15 billion. At Deloitte, mergers and acquisitions include not only the purchase of all shares but also an investment that includes the purchasing of a stake of more than 20% in the company.
The picture that emerges from the 2023 summary shows that 75% of the transactions were small, with a value of less than $100 million. Moreover, some 64% of the purchases were done in the first half of the year, while only 36% of the transactions were completed in the second half. Eyal Schwartz, head of banking, investments and corporate finance at Deloitte Israel and the author of the report, believes that this indicates the opening of a negative gap between Israel and the rest of the world. "In the second half of 2023, a recovery actually began in the United States, which shows that the reasons for the slowdown in Israel were local, first of all, a protest against the judicial coup and the continuation of the war," he told Calcalist. "Since the war began, only the deals that were already nearing completion, after the completion of the due diligence, were completed, but the less mature deals are stuck, with the foreign entities debating whether to do them now or wait until after the war."
Another striking and surprising development recorded in the last year is a 33% dive in the activity of private investment funds (private equity) in Israel. The volume of transactions was $3.5 billion, reflecting a 37% drop compared to 2022. At the beginning of the year, the expectation was that investment funds would chase companies willing to compromise on value due to the change in the macro environment.
Another surprise is that the main decrease comes from Israeli funds, while the number of transactions made by foreign investors remains similar to last year. "One could have expected more activity of the funds because there is no shortage of money on the one hand, and on the other hand, there are opportunities, but apparently the funds prefer to focus on improving and supporting the existing portfolio companies," Schwartz explains.
In 2023, most of the significant deals made in Israel were not with high-tech companies, unlike most years. Traditional industry, especially in the infrastructure sector, stood out with the sale of the Eshkol power plant to Dalia Energies and the privatization of the Haifa port, which was sold to the Gadot group and Indian giant Adani. Technology companies accounted for half of all transactions, similar to 2022. Notably, for the first time, two significant investments were made in Israeli companies by entities from the United Arab Emirates, one in a technology company and the other in a food company.
Looking ahead to 2024, the picture is not particularly encouraging due to the high level of uncertainty that makes it difficult to price transactions. Deloitte notes the increase since October in Israel's risk premium, which hurts the value of local companies in the eyes of foreign investors. "The high uncertainty causes companies to go on the defensive," says Deloitte, "from talking about growth, business development, and acquisitions, they moved to talking about focusing on efficiency, profit, and lowering expensive leverage. When budgets and forecasts are vague, the buyers' fear increases, and there is difficulty in pricing the companies."
Now, on the one hand, at the global macroeconomic level, there are reasons for optimism in view of the moderation of inflation and expectations of lower interest rates later this year. Still, on the other hand, the situation in Israel moderates the positive winds blowing from the U.S. Deloitte estimates that the direction will ultimately be decided by the continuation of the war in Israel. Sectors such as security and infrastructure can flourish after the war, and there are also large deals already in the process, such as Keter, Cellcom, and the privatization of the Israeli Post Office, which should be implemented in 2024," Schwartz concludes.
