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Israeli private equity investments slow in first half

Israeli private equity investments totalled USD1.6 billion in 29 private equity deals during the first half of 2016, notably below the USD2.1 billion closed in 53 deals in H1 2015, according to the latest IVC-Shibolet Private Equity Survey.

The two largest deals were performed in the second quarter, accounting for 67 per cent of total capital investments. The average PE deal in H1 2016 stood at USD53 million, a jump from the USD39 million average in H1/2015.
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In Q2 2016, 13 Israeli private equity deals accounted for USD1.3 billion, a jump from the USD270 million invested in Q1 2016, but below the USD1.6 billion in Q2 2015. The average deal amount climbed to USD98 million, the highest quarterly average in the past four years.


The quarterly results were mostly based on two large buyout transactions: the USD643 million buyout of Xura (formerly Comverse) by American PE fund Siris Capital, and the USD400 million buyout of Sintec Media by Francisco Partners. In comparison, in Q1 2016, no private equity deals passed the USD100 million threshold.


In Q2 2016, Israeli private equity funds invested USD184 million, or 19 per cent of total PE investments. The amount was 55 per cent up from the USD119 million invested in Q1 2016. The largest deal performed by an Israeli fund in the second quarter was the USD90 million buyout of Arena Mall Herzliya, by real estate fund Reality Investment. In the first half of 2016, investments performed by Israeli private equity funds reached USD303 million, representing a year-on-year decline.


Foreign private equity funds led in Q2 2016, with USD1.1 billion, including the two largest buyouts so far. The share of foreign PE funds increased to 86 per cent out of total investments, as compared with Q2 2015's share of 81 per cent. 

 
Omer Ben-Zvi, partner at Shibolet & Co, says: "After a weak first quarter, we are happy to see the Q2 2016 scope of private equity deals growing again, as we have previously foreseen. We believe that this is evidence of the overall further strengthening in the local industry. This is especially true in the Israeli high-tech sector, which is producing more and more mature companies that become potential targets for private equity investors. A case in point in the second quarter was the continuous activity of Francisco Partners, a long time player in the Israeli PE market, alongside newcomer Siris Capital Group, which made its first investment in Israel.
 
“Obviously, the local PE market is sensitive to macroeconomic fluctuations, such as the US interest rate expected mark-up and Asian markets slowdown."
 
The Israeli technology sector continued to lead private equity investments in Q2 2016, with USD1.1 billion invested in eight deals, or 87 per cent of total investments. The first six months of 2016 clearly demonstrated private equity investors' preferences – USD1.4 billion, or 88 per cent, of all PE investments were made in the technology sector. This was the largest share for this period so far, exceeding even H1 2015’s 76 per cent share, when USD1.6 billion was invested in the Israeli high-tech industry by private equity funds.
 
According to the IVC-Shibolet PE Survey findings, straight equity deals performance was considerably down in Q2 2016, as well as the first half of 2016. Only 19 straight equity transactions totalled USD204 million (16 per cent of the entire amount) in H1 2016, 50 per cent down from 40 deals performed in both H1 2015 and H1 2014, when they were the preferred tool by PE funds. The decrease in the number of straight equity deals accounted for the 74 per cent drop in the amount invested in the first half of 2016, with a mere USD204 million, as compared with the record high USD774 million invested in the same period of 2015. The largest straight equity deal in H1 2016 was a USD30 million investment in ForeScout, by Wellington, a US-based PE fund.
 
Marianna Shapira, research manager at IVC, says: "Indeed it seems global economy trends have influenced the Israeli private equity market in the first half of 2016. PE funds have certainly taken a cautious approach to their asset allocation, minimising risks and sticking to classic PE investment strategies, especially evident in the second quarter, which featured preference for more traditional private equity mechanisms, such as buyouts, and decrease in riskier minority-stake straight equity transactions."
 
According to the IVC-Online Database, 41 Israeli private equity management companies are currently active, with a total of nearly USD10.8 billion under management. To date, five Israeli private equity funds raised capital in 2016, closing USD1.7 billion in total, with FIMI’s sixth fund of USD1.1 billion the most prominent. Three more funds are in the midst of capital raising, targeting an approximate total amount of USD600 million. 

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