GP interest in Israel's PE space grows, says PitchBook

Tel Aviv

The nature of Israel’s legal system, the availability of local financing, and expanding numbers of tech-based targets helped the country post its best first-half deal figures in over a decade, according to Pitchbook’s 2020 Israel Private Capital Breakdown report. 

The report, which was released today and covers both private equity in Israel as well as the nation’s growing VC ecosystem, shows that 24 transactions closed worth USD 2.9 billion in H1 2020 - a year on year increase of 48.3 per cent and 16.2 per cent, respectively.

Israel’s private equity ecosystem is growing rapidly due to several factors, one of them being the growth in ‘brand recognition’, which the so-called 'startup nation' has experienced in recent years.

Global players including KKR, Barings Private Equity Asia, and Warburg Pincus have all completed high-profile deals in the region recently.

Second, Israel’s domestic private equity scene has become more prominent and its targets more receptive to the industry’s value proposition overall.

This includes local groups such as FIMI Opportunity Funds and Fortissimo Capital – both of which have around USD1 billion in assets under management.

Another reason is that LPs seem to be becoming more comfortable allocating capital to previously hard-to-reach regions such as Israel, due to the no-interest-rate environment and the diversification benefits that funds in the region bring, according to Pitchbook Data.

Moreover, Israel's courts use the Delaware Court of Chancery for reference in financial law, making ownership structures conducive to sponsor transactions.

As seen in several areas of the economy, the pandemic has accelerated trends already underway within the PE space. The secular shifts towards investing in tech and healthcare assets have been pushed forward by around five years, and this puts the innovative and forward-thinking region of Israel in a favourable position, in PitchBook’s view.

The data and research company anticipates that a growing number of GPs will turn their gaze towards Israel as the potential for lower valuations, less competition, and outsized returns increases, while competition swells for ‘Covid-19-proof assets’ in Europe and North America.