Global Private Equity in Israel: Where Innovation Meets Capital

Finance 626 – Professor David Brophy
Winter
13
Global Private Equity in Israel: Where Innovation Meets Capital
Kevin Crosby
Abby Gao
Alex Merz
Zakariah Nasser
Michael Walsh

Global Private Equity Israel: Where Innovation Meets Capital
2 |F I N A N C E 6 2 6
Table of Contents
Introduction and Overview ...........................................................................................................................4
Creation of VC/PE Industry..........................................................................................................................4
Exhibit (1): New ITP Programs in Israel during the 1990s ............................................................5
How Tel Aviv Became the Entrepreneurial Hub......................................................................................5
Factors in the Development of PE Market in Israel..................................................................................6
Exhibit (2): Yozma Funds – Capital, Foreign Investors and Portfolio ..........................................7
Economic Stability and Global Competitiveness..........................................................................................8
Exhibit (3): Countries/Economies at Each Stage of Development..................................................9
Protection Reforms .................................................................................................................................10
International R&D Programs ..................................................................................................................11
Foreign Direct Investment ......................................................................................................................11
Competitive Edge........................................................................................................................................12
Israeli Accounting Regulations...................................................................................................................12
Financial Statement Format ....................................................................................................................13
Understandability....................................................................................................................................13
Global Comparability..............................................................................................................................13
Advantages..............................................................................................................................................13
Tax Rate Comparison, US and Israel..........................................................................................................14
Exhibit (4): Marginal Corporate Tax Rates, 2001 - 2011..............................................................14
Capital Markets...........................................................................................................................................15
Exhibit (5): TASE Trading Statistics (1998-2010) .........................................................................16
Exhibit (6): Israeli Companies Listed on NASDAQ by Sector .....................................................16
Exit Opportunities.......................................................................................................................................17
Exhibit (7): Israeli high-tech capital raising 2002-2012 ($M) .......................................................17
Exhibit (8): The Global Venture Capital and Private Equity Country .......................................18
Trends in Israeli Private Equity and Venture Capital .................................................................................18
Summary of Deals: Role of Public Companies and Private Equity Sponsorship .......................................19
Table (1): Deal Size Distribution .....................................................................................................19
Private Equity Involved In Transaction ..................................................................................................21

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Table (2): PE Involvement in Deals.................................................................................................22
Table (3): PE Impact on Target/Acquirer or Sponsor on Deal Size.............................................22
Table (4): PE Firm Involvement......................................................................................................23
Table (5): PE Involvement by Sector ..............................................................................................24
Deal Solicitation......................................................................................................................................25
Table (6): PE Impact on Deal Solicitation ......................................................................................25
Tables (7): Share of Solicited Deals.................................................................................................25
Investment Banks and Legal Advisors....................................................................................................24
Table (10): Share of Deals and Impact with Bank Involvement...................................................26
Table (11): Share of Deals and Impact with Legal Involvement ..................................................26
Exhibit (7): Key Bank and Legal Advisors by Number of Deals..................................................27
Impact of Cross-Border Transactions In Israel.......................................................................................28
Table (12): Cross Border M&A with Bank Involvement..............................................................28
Additional Detail Regarding Deal Activity ................................................................................................29
Table (13): 1998~2012 Israel PE M&A Transaction Value vs. Total M&A Value.....................29
Table (14): 1998~2012 Israel PE M&A Transaction .....................................................................29
Cumulative Abnormal Returns (CAR) .......................................................................................................31
Table (15): Calculated CAR by Transaction..................................................................................32
Overall Attractiveness and Challenges .......................................................................................................32
Conclusion ..................................................................................................................................................33
Appendix:....................................................................................................................................................34
Trade Agreements.............................................................................................................................34
Differences between GAAP/IFRS....................................................................................................35
Active PE/VC Firms Israel...............................................................................................................36
Works Cited ................................................................................................................................................37

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Introduction and Overview
Israeli Private Equity is traditionally centered in venture capital [referred to as “VC” going forward].
Since the 1950s, backed by heavy investment in R&D, government tax incentives, a burgeoning
intellectual environment, and entrepreneurship spirit, start-ups in Israel have flourished and attracted
investment from all corners of the world. A favorable political relationship between the U.S. and Israel
has increased access to capital, encouraged shared technology, and has created an environment where
venture capital flows easily in and out of Israel. This relationship culminated in the development of
industries in software, pharmaceutical/biotechnology, and IT infrastructure. While Israel has bred many
innovative companies, it has not developed and grown its own “Google” or “Facebook.” Despite this,
many U.S. tech-firms (EBay, Hewlett Packard, etc.) have made sizeable acquisitions of Israeli companies
that have bolstered their business portfolios. Our intent is to expose private equity [referred to as “PE”
hereafter] environment and its proliferation in Israel. The paper will outline both the development and
history of PE in Israel, and will highlight recent industry trends. Our discussion will illuminate the
reasons why both PE and VC investment opportunities in Israel are favorable alternatives to investing in a
firm’s home country, including: accounting practices, tax standards, and efficient capital markets which
enable exit through acquisition or IPO. Finally, we survey several key deals that provide insight to the
flow of capital within Israel and lay out how value is created for both the PE and VC funds, as well as for
public companies through acquisition.
Creation of VC/PE Industry
Israel’s PE market is rooted in VC, with a long tradition of strong entrepreneurship. The unique VC
programs Israel used to kick start its PE market deserve some attention. The first attempt was through the
Inbal Program, where the government provided downside protection in the form of 70% guarantees to VC
funds1
. However, this program did not create a free standing and fully functional VC industry. At the
time, Israeli’s lacked tech knowledge and the industry’s professionals were woefully inexperienced. The
second program, Yozma, led to much better results since it was executed by the Office of the Chief
Scientist at the Ministry of Trade. Here, the government provided 40% of fund capital which was sold
back to the managers at cost2
.VC funds created by the Yozma Program are still among the top 20 Israeli
funds today and the program’s legacy continues through the Israeli Venture Association.
1
Rozenrot, Elnor. Note on Private Equity in Israel. Ed. Fred Wainwright. Center for Private Equity and Entrepreneurship. Tuck School of
Business at Dartmouth, 02 Aug. 2005. Web. <http://mba.tuck.dartmouth.edu/pecenter/research/pdfs/israel.pdf>
2
Rozenrot, Elnor. Note on Private Equity in Israel.

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Exhibit (1): New ITP Programs in Israel during the 1990s3
1) Inbal (1992-1998) - a Government owned Insurance company, which gave partial (70%) guarantees to traded VC
funds. Four VC companies were established under Inbal regulations.
2) Yozma (1993-1998)—a $ 100M Government owned VC company, which invested in 10 private early- phase oriented
VC Funds which operated in Israel (8M$ per fund).
3) Magnet Program (1992--)—a Horizontal Program supporting cooperative, generic R&D involving group of firms and
at least one University (annual budget 40-60M$).
4) Technological Incubators’ Program (1992--)—a program supporting startups during the first three years of their
operation. The incubators are privately managed (since 2001 they became also privately owned). Both they and the
projects approved get financial support from the Government (annual total program budget 25-30M$).
Companies in the market have traditionally received favorable support from government in the early
stages of development, in the form of tax incentives. Given outsized R&D expenditure, coupled with one
of the world’s most highly educated populations, Israeli VC is highly concentrated in the high-tech sector,
which includes: life science/pharmaceutical/biotechnology, software, communication and internet.
Venture firms traditionally plan exits through IPO, often targeting the NASDAQ or other major stock
markets. The Tel Aviv Stock Exchange [“TASE”] is another exit option, but is used less frequently due
to low valuation multiples and comparatively low post-IP liquidity4
.
In contrast to well-developed VC markets, Israel’s PE sector is still in a relatively early stage, having
been born in 2004 with the establishment of Markstone Capital5
. Most of the capital for early PE funds
was raised internationally until regulations were relaxed, allowing Israeli insurance companies to invest in
PE. Foreign investments have and will continue to play an active role in mergers and acquisitions
[“M&A” hereafter] activities in the Israeli PE market. Most foreign PE firms that invest in Israel are
established entities in the U.S. or Europe, that have extensive global networks. Given their strong
capability to raise capital and network advantage, most exit deals are made through portfolio divestiture to
international strategic buyers.
How Tel Aviv Became the Entrepreneurial Hub
Tel Aviv has had a long history with business. In the early 1900s, Tel Aviv was built near the coastal city
of Jaffe, whose port was busy with trade. European middle-class immigrants arrived to the “White City”
in the 1920s leading the way to a modern city. A more recent growth accelerator came in the form of
3
Avnimelech, Gil. “VC POLICY: YOZMA PROGRAM 15-YEARS PERSPECTIVE.” Copenhagen School of Business. June 2009. Presented at
Druid Summer Conference Summer 2009.
4
5
No Author. ‘Spreading its wings: Private equity in Israel-growing internationally’, Hillel Schuster, KPMG in Israel, April 2011.

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wealthy Russian immigrants moving to the downtown area after the collapse of the Soviet Union, thus
creating capital sources that could fund ventures within the city. When the U.S. rejected most of the
Russian requests to immigrate, Tel Aviv reaped the benefits of intellectual capital when the Russians
moved there.
Today, Tel Aviv is the most secure location in Israel due to its surroundings: Jordan is immediately to the
east, the Mediterranean is on its west coast, and the rest of Israel stretches far into the north and south.
This positions Tel Aviv far from Gaza and other violent areas. Additionally, all foreign embassies are
located in the city. The international community counts Tel Aviv as the capital, not Jerusalem, and enjoys
the security of its location; investors are able to evacuate both the city and country safely through the
embassies, when Israel is under attack. This factor has attracted foreign investments to the city, and
mitigated fears that both financial and human capital would be casualties of foreign violence. Finally, the
city has developed into an urban-modern secular city, which attracts young people. Ultimately, it is these
young professionals that are the pioneers of innovation.
Factors in the Development of PE Market in Israel
Regardless of political conflicts, security risks, or geographic disadvantage, Israel is widely recognized as
an innovative country where entrepreneurship is the engine of the economy. In Israel, setting up a new
business is considered a respectable, laudable, albeit challenging career track. While this avenue is risky,
many Israelis are rewarded for taking the change with high incomes, giving them economic
independence, social status, and prestige. According to GEM, in 2010, Israel ranked 47th
among the 60
GEM countries in terms of total early-stage entrepreneurial activity, playing 13th
among the 23
innovation-driven countries6
.
Israel’s military advantage, which was built through the emphasis placed on self-sufficiency, provides
technology and talents that strengthen the Israeli high-tech industry. In the mid-1980s, after demise of the
Lavi Fighter Project, Israel’s defense industry shifted its focus toward auxiliary systems. This has
provided local technology innovators an advantage in producing civilian spin-offs in security, electronics,
software, and the burgeoning internet sectors7
. Also, following dissolution of the Soviet Union,
immigration of Russian scientists and engineers helped fuel Israel’s GDP growth and increase the
business sector’s product growth.
6
No Author.‘GEM 2010 Israel National Entrepreneurship Report’, 2011
7

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Government’s support for R&D and start-up companies is another engineer of PE’s growth.
According to the OECD, Israel is ranked 1st
in the world in R&D expenditure as a percentage of
GDP8
. It is also ranked 1st
in the world in percent of scientists and technicians relative to total worker
population. On average, out of 10,000 workers in Israel, 140 are scientists and technicians9
. Beyond
its continued support for R&D and education during the 1990s, government initiated the Yozma
Program by allocating $100M to funds specifically as capital to be called. Foreign funds were given
$8M to invest in businesses to attract foreign capital and limit the downside risk of investment in
Israeli innovation. Additionally, the government used $20M to invest directly as part of the Yozma
Fund. This led to $263M of initial VC in Israel10
. After the investment, Yozma took off:
There is wide consensus that one of the major factors triggering emergence of Israeli VCs was
Yozma. Four sets of factors seem to have been responsible for Yozma to become an effective trigger of
Israel's ICT Cluster: a) favorable background conditions; b) policy and market forces’ experimentation
during the pre-emergence period; c) timing - the time overlap between Yozma implementation on the
one hand and the rising Nasdaq index and expanding market for ICT on the other; and d) the
successful design and implementation of the Yozma program11
.
Nearly 100 VC firms have been established using foreign and local investment capital. From 1993 to
2007, approximately $9.4B was raised12
. The highly developed VC market has created a good
infrastructure that serves as a significant comparative advantage for PE firms to make deals. A favorable
legal framework based in common law, which also incorporates facets of civil law and beneficial tax
policies also provide support for PE to grow.
Exhibit (2): Yozma Funds – Capital, Foreign Investors and Portfolio13
Name Est. Capital Foreign LP LP Orion Portfolio Exits
Eurofund 1994 $20M Daimler-Benz,
DEG
Germany 14 7 (50%)
Gemini 1993 $36M Advent USA 25 13 (52%)
Inventech 1993 $20M Van Leer Group Netherlands 33 16 (48%)
JVP 1993 $20M Oxton USA 12 10 (83%)
Medica 1995 $15M MVP USA 10 5 (50%)
Nitzanim 1994 $20M AVX, Kyocera Japan, Japan 13 7 (54%)
Polaris (Pitango) 1993 $20M CMS USA 19 13 (68%)
Star 1993 $20M TVM
Siemmens
Germany 27 15 (56%)
Vertex 1996 $39M Vertex Int.,
Singapore tech
USA ,
Singapore
29 16 (55%)
Walden 1993 $33M Walden
International
USA 21 10 (48%)
Yozma 1993 $20M None IL Gov. 16 10 (63%)
Total $263M 217 122 (56%)
8
No Author. OECD Factbook 2010: Economic Environmental and Social Statistics
9
10
Avnimelech, Gil. “VC POLICY: YOZMA PROGRAM 15-YEARS PERSPECTIVE.”
11
12
No Author.‘Spreading its wings: Private equity in Israel-growing internationally’, Hillel Schuster, KPMG in Israel, April 2011
13

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Without the success of Yozma, the VC/PE market in Israel would look vastly different today. The
infusion of capital spurred by Yozma’s success “triggered a cumulative process with positive feedback in
which more profitable VC activity at present spurred even more profitable VC activity in the future14
.” It
is important to understand the significance of this program’s success and note that this model is unique to
the Israeli business environment.
Economic Stability and Global Competitiveness
The Swiss-based Institute for Management Development (IMD) has ranked Israel's economy 9th
highest
for its durability in the face of the global financial crisis15
. In 2010, it joined the OECD, a forum of
countries that are committed to democracy, free-market economics, and provide a platform to compare
policy experiences, seek answers to common problems, identify good practices, and co-ordinate domestic
and international policies of its members16
. Its free market economy is resilient, technically advanced, and
globally integrated, ranking as both the world's most durable economy in the face of crises as well as 1st
in the rate of R&D center investments17
. The economy’s strength and resilience is attributable to strong
fundamentals, active government agencies that protect private savings and promote continuous growth,
and a history of strong economic performance that attracts foreign investment.
The transition from the state-dominated, centralized, and protectionist economy that prevailed during the
1980s and 1990s, created significant opportunities for investors to buy good companies at deep discounts,
accounting for much of the cross-border M&A activity that was present during the first decade of the
2000s. Since becoming a free market, the country has become an even more attractive place for
multinationals to do business, led by a vigorous private sector and encouraged by government policy.
Israel currently ranks 3rd
in the region on the World Bank's Ease of Doing Business Index as well as in the
World Economic Forum's Global Competitiveness Report 18 ,19
. It has the second-largest number of
14
15
No Author. "Israel: A Resilient Global Economy." Invest in Israel. Ministry of Industry, Trade & Labor State of Israel, 5 Dec. 2012. Web.
<http://www.investinisrael.gov.il/NR/exeres/75A535CF-BCC7-4A06-9E24-88EAC7EC67C0.htm>.
16
No Author. List of OECD Member countries - Ratification of the Convention on the OECD. Organization for Economic Co-operation and
Development. Retrieved 12 August 2012. <http://www.oecd.org/general/listofoecdmembercountries-
ratificationoftheconventionontheoecd.htm>
17
Viniar, Olga. "'Israel's Economy Most Durable in Face of Crises'" Ynet News.com. N.p., 20 May 2010. 03 Feb. 2013.
<http://www.ynetnews.com/articles/0,7340,L-3891801,00.html>.
18
No Author. Economy Rankings. Ease of Doing Business (World Bank). Retrieved 20 March 2012. <http://www.doingbusiness.org/rankings>
19
Bilbao-Osorio, Beñat, Ciara Browne, Roberto Crotti, Jennifer Blanke, Brindusa Fidanza, Thierry Geiger, Margareta Drzeniek Hanouz, and
Xavier Sala-i-Martin. The Global Competitiveness Report. Rep. Ed. Professor Klaus Schwab. World Economic Forum, 2012. Web.

9 |F I N A N C E 6 2 6
startup companies in the world, after the U.S.20
, and the largest number of NASDAQ-listed companies
outside North America21
. With a $17,000 per-capita domestic product, a 2.5% annual population growth
rate, and a 6% average real GDP growth rate over the last seven years, Israel has the characteristics of an
emerging economy22.
Its highly industrialized economy and its advanced technological infrastructure,
give Israel the stability normally associated with more developed economies23.
The country features a
unique capacity for innovation (3rd
), particularly in telecommunications, with other strengths in IT,
environmental sustainability, as well as electronics and life sciences. Israel’s highly innovative businesses
benefit from the presence of the world’s best research institutions. Israel’s excellent innovation capacity is
supported by the government’s public procurement policies24
. This has translated into the country’s high
number of patents (4th
)25
. Further, the financial environment has become more inviting, evidenced in the
ease of access to VC (3rd
)26
.
Exhibit (3): Countries/Economies at Each Stage of Development
Source: The Global Competitiveness Report
20
Bounfour, Ahmed; Edvinsson, Leif (2005). Intellectual Capital for Communities: Nations, Regions, and Cities. Butterworth-Heinemann. p.
47. ISBN 978-0-7506-7773-8. <http://en.wikipedia.org/wiki/Special:BookSources/978-0-7506-7773-8>
21
No Author. NASDAQ Appoints Asaf Homossany as New Director for Israel. NASDAQ OMX Group. 6 February 2005. Retrieved 21 March
2012.No Author. Capital Market Research | Leumi Group. Web.<http://english.leumi.co.il/LEFullArt/Israel_Capital_Markets_Report/5756/>.
22
No Author. "Israeli Investment." Israeli Investment. Ahavat Israel, n.d. Web. 05 Feb. 2013. <http://www.ahavat-israel.com/eretz/invest.php>.
23
No Author. "Israeli Investment."
24
Bilbao-Osorio, et al. The Global Competitiveness Report.
25
26

10 |F I N A N C E 6 2 6
Protection Reforms
To further promote the attractiveness and stability of its economy, Israel introduced some far reaching
reforms, attributable to conclusions drawn from the 2008-09 global recession27
. The reforms were
introduced despite the strength exhibited by the Israeli economy as a whole and, specifically, its financial
institutions, during which their mettle was tested. The steps taken by Israeli regulators and lawmakers
have resulted in two significant changes in Insurance and Savings, and in the Israel Securities Authority's
(ISA) enforcement mechanisms. The Insurance and Savings legislation is meant to put certain limitations
on and to set ground rules for the investment of institutional bodies in non-governmental bonds28
. The
second reform concerns the improvement in the efficiency of Israel Securities Authority's (ISA)
enforcement mechanisms29
. In addition to measures that strengthen the overall economy, the Israeli
capital markets have undergone tremendous change. The make-up of market participants and existing
relationships have materially changed as reforms in how both Israeli pension funds participate and non-
governmental bonds are traded on the TASE, have increased the volume and tradability of Israeli
securities. The capital markets are now more transparent as the ISA, the government’s market regulation
authority, has enforced heavy responsibility on publicly traded companies, their employees, controlling
shareholders and officers, licensed investment officers, trustees, and portfolio managers30
.Free Trade
Israel's extensive networks of international trade and economic cooperation agreements have increased
the global interest of doing business with Israeli companies. Free Trade Agreements [“FTAs”], R&D
programs, and tax incentives were all part of Israel’s progression towards a free-market economy. Its
trade policy aims to continue the expansion of its network of bilateral trade agreements. FTAs serve to
facilitate international trade in merchandise by eliminating or reducing tariffs and other trade barriers
between the participating parties. Israel enjoys FTAs with North America and most of Western Europe
that cover close to 80% of Israel's foreign trade31
. Another important FTA was recently signed with
MERCOSUR, the Latin American regional trade union (comprising of Brazil, Argentina, Uruguay and
Paraguay). This FTA gives Israel strategic access to Brazil, which is viewed globally as an emerging
economy. Please refer to Appendix for list of FTAs.
27
No Author. "Israel: A Resilient Global Economy." Invest in Israel. Ministry of Industry, Trade & Labor State of Israel, 5 Dec. 2012. Web.
<http://www.investinisrael.gov.il/NR/exeres/75A535CF-BCC7-4A06-9E24-88EAC7EC67C0.htm>.
28
No Author. "Israel: A Resilient Global Economy."
29
30
31

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International R&D Programs
Similar to its initiative to increase free trade, Israel has developed an extensive network of international
R&D accords that foster industrial and technological cooperation with many countries32
. Specifically,
Israel has created: Bi-national R&D funds, Bi-national R&D Agreements, and an E.U. Sixth Framework
Program, all of which allow foreign investors to take advantage of Israel’s highly talented labor force33
.
These programs have proven to be remarkably successful. Israel has established Bi-national funds with:
the U.S., Britain, Canada, Singapore, and Korea, as well as with the Canadian Province of Ontario, and
the Australian State of Victoria. Bi-national R&D Agreements have been established with 13 countries:
France, Germany, Italy, India, China, and others. The country is the prime vehicle for tech R&D of the
European Union with the E.U. Sixth Framework Program34
.
Foreign Direct Investment
Removing barriers to trade and opening capital markets has served the Israeli economy extremely
well. Economic openness contributed significantly to Israel's growth and its increased economic
efficiency; growth has been fueled largely by steady increases in both exports and foreign
investment. The international investment community has continued to show faith in Israel's economic
potential, increasing investments in the country from abroad. Foreign Direct Investment [“FDI”] in Israel
reached $4.4Bin 2009, and $5.1B in 2010. By 2011, FDI reached $11 billion35
. The Bank of Israel was
ranked 1st
among Central Banks for its efficient functioning, up from 8th
in 2009. Israel was also ranked as
the worldwide leader in its supply of skilled manpower.
The tangible result of all this is an economy valued by equity markets for its growth potential and by debt
markets for its maturity and stability. A wave of public stock offerings this decade in various global
capital markets has brought approximately 100 Israeli companies to the NYSE, NASDAQ and AMEX
equity markets. No other foreign country, apart from Canada, is so heavily represented on Wall Street.
Most of these stocks are of high-tech companies traded on NASDAQ, and over a dozen of them now have
market capitalizations [“market caps”] of over $500M. This exclusive “club” includes a number of well-
known world leaders in their fields, such as ECI Telecom, Comverse Technology and NICE Systems
(telecom equipment), Orbotech (optical inspection), Scitex and Indigo (digital imaging), and
pharmaceutical giant Teva.
32
33
34
35

12 |F I N A N C E 6 2 6
Competitive Edge
Today, led by a vigorous private sector and encouraged by government policy, Israel has evolved into a
capitalistic economy, dominated by free-market forces, deregulation and competition. Israel invests about
4.25% of its GDP in R&D, which is the highest ratio of any country in the world36
. Due to high returns on
investment (ROI) and innovative technology development, Israel has become a preferred investment
choice among global leaders. Investments by multinational companies have been made in Israel by:
Microsoft, Berkshire-Hathaway, Motorola, Intel, HP, Siemens, Google, Samsung, GE, Philips, Lucent,
AOL, Cisco, IBM and J&J, among others. Israel is ranked 2nd
in the world for availability of qualified
scientists and engineers and second in terms of total public expenditure on education as a percentage of
GDP37
. However, Israeli innovation is borne of necessity: 1.) Israel is arid, so citizens excel at water and
agricultural technology, 2.) there is little oil, so Israelis had to find alternatives, 3.) the country is
surrounded by enemies, so military technology is superb and creates lucrative spin-offs (especially in
communications), 4.) the relationships that Israelis forge during military service have carried over into
civilian life and manifested in strong business relationships38
.
In addition to the intellectual capital that gives Israel a comparative advantage, Israeli managers were
ranked 2nd
in the world for their business entrepreneurship, according to IMD Global Competitiveness
Yearbook 201239
. Since its inception, and fortified by the resolve of the nation, post Yom-Kippur War, to
become more self-sufficient (late 1960s and early 1970s), Israel has been a hotbed for both start-ups and
VC. Between the ideal conditions for innovation (education and workforce), Israel will continue to be 1st
in the world for number of start-ups per capita (currently 4,000 active technology start-ups), providing its
entrepreneurs with the necessary backing to turn their innovative ideas into profitable businesses40
.
Israeli Accounting Regulations41
Since January 1, 2008, Israeli companies have been required to follow the International Financial
Reporting Standards (IFRS) for all organizations, with a few notable exceptions:
1.Banks must follow United States style GAAP Accounting Standards, which has become the de-
facto world standard to ensure comparables.
36
No Author. 2012 Results: World Competitiveness Yearbook. Publication. IMD, n.d. Web. 05 Feb. 2013.
<http://www.imd.org/research/publications/wcy/World-Competitiveness-Yearbook-Results/>.
37
2012 Results: World Competitiveness Yearbook. Publication
38
The Economist Staff. "What next for the Start-up Nation." Theeconomist.com. N.p., 21 Jan. 2012. Web.
<http://www.economist.com/node/21543151>.
39
"Israel: A Resilient Global Economy."
40
No Author. 2012 Results: World Competitiveness Yearbook. Publication
41
"IAS Plus." Israel -. N.p., n.d. Web. 18 Feb. 2013.

13 |F I N A N C E 6 2 6
2.Companies who have joint operations and are cross listed between the United States and Israel
may elect to use GAAP or IFRS standards for their listings.
Israeli Accounting Standards (IAS) are now listed as fully compliant with IFRS, and any changes in the
IFRS will automatically cascade down to the IAS. For a list of IFRS/GAAP Comparisons, please refer
to Appendix.
Financial Statement Format
Companies adhering to IFRS use a similar format for their financial statements; investors who compare
financial statements from companies operating in different countries can place the statements next to each
other. The gross margin, operating income and net income fall in the same locations on the statements.
The balance sheet, the statement of cash flows and the retained earnings statement also follow similar
formats. Investors enjoy the advantage of evaluating financial statements with east due to format
similarity. 42
Understandability
End users also enjoy the advantage of understanding the financial data communicated, whether it comes
from their country or a different one. IFRS accounting principles require that all companies follow the
same guidelines. When the end user understands these guidelines for a company in one country, she can
assume that all companies in compliance with IFRS follow the same guidelines. 43
Global Comparability
The international community reaps the reward of comparing the financial statements from a company in
one country to a company in another country. They can access the financial statements either as a hard
copy or electronically via the Internet. The end user compares the net income and calculates financial
ratios for different companies.44
Advantages
Two of the key advantages this system can provide in the context of Israel are the R&D capitalization vs.
expense difference, and the revenue recognition element. Because R&D costs can be capitalized, firms
that heavily rely on new and emerging technologies to drive their future development will appear to be
more favorable vis-a-vis a US firm with identical products. Additionally, revenues can be recognized with
greater flexibility, allowing for potentially faster revenues hitting the top line, with massive downstream
impacts. Over the last few years, more nations have converted to the IFRS standards. As an emerging
42
"IFRS and US GAAP: Similarities and Differences." PwC. N.p., n.d. Web. 18 Feb. 2013.
43
44

14 |F I N A N C E 6 2 6
economy, the advantages in comparability to other established economies have profound impacts on PE,
as informational equality makes it easier to vet potential investments, and due to their compliance with
these standards through the required audits, a high degree of insurance as to the informational integrity
allows for greater investor confidence. 45
Tax Rate Comparison, US and Israel46
Israel has a lower marginal corporate tax rate than the United States. Over the last decade, Israel has been
consistently cutting its marginal rate with the intention of continuing to spur investments and encourage
greater profitability vis-a-vis their US counterparts. The exhibit below traces these marginal rates over the
10 year period from 2001 through 2011.
Exhibit (4): Marginal Corporate Tax Rates, 2001 - 2011
Country 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Israel (%)
36 36 36 36 34 31 29 27 26 25 24
United States (%)
30 30 35 30 30 30 30 25 25 40 40
Allowing more corporations to retain a greater amount of their earnings, more capital would be available
for further R&D, employment, and exploratory research for new markets. This corporate income tax
differential creates a competitive advantage when it comes to Foreign Direct Investment (FDI), and
makes Israel a favorable tax haven relative to many areas in the west. Israel’s personal income tax is a
graduated tax scale that is a steeper rate than the United States, with the marginal tax rate in Israel for
2012 listed at 48% (U.S. Rate: 35%)47
.
Further enticing foreign investment in Israel, the tax code allows for those that reside outside of Israel for
183 days a year or more, to be exempt from paying Israeli tax on capital gains, dividends and interest
paid. This is based on the assumption that taxes will be paid in the resident’s home country. For Israeli
residents, there is a relatively low tax on capital gains: 15% for gains on adjustable and fixed-rate bonds
as well as on non-inflation-indexed interest, and 20% on all other gains. These rates apply to all holding
durations. 48
45
46
http://www.investinisrael.gov.il/NR/exeres/51BFA8E2-F457-4E6A-B282-3D714A1A047A.htm
47
48

15 |F I N A N C E 6 2 6
Capital Markets
The Tel Aviv Stock Exchange [“TASE”] is the only public market for trading securities in Israel, and as
such, plays a major role in the economy. TASE lists 736 companies, 130 of which are also listed on stock
exchanges in other countries. TASE also lists some 180 exchange-traded funds, 60 government bonds,
500 corporate bonds, and more than 1000 mutual funds49
. However, due to international interest in Israeli
companies, many Israeli start-ups are not listed on the TASE.
Bonds
In addition to a stock market, the Tel Aviv Stock exchange boasts a liquid market for both government
and corporate bonds. Structurally, bonds can be bought and sold instantaneously online, like stocks, and
typically feature small bid-ask spreads. Like the U.S., Israeli Government Bonds and corporate
debentures include short, mid and long-term fix-rate and variable-rate bonds, as well as the cost-of-living
indexed bonds50
. Daily bond trading volume is $760 million51
. Bonds, and more specifically High-Yield
Bonds, increase PE firm’s ability to enter into deals with Israeli companies, access debt, and “lever-up.”
As PE matures in Israel, we believe this access to debt will be a discerning factor for cross-border PE
firms looking to do business with Israeli companies. Just recently (December 17, 2012), the first Israeli
High-Yield Bonds were listed on an exchange, the Luxembourg Stock Exchange52
. We believe this listing
indicates the business environment is becoming more attractive for cross-border PE.
Stocks
There are 736 companies listed on the TASE. Some of the listed companies are local corporations with
less than $2.5M market caps, while others are international powerhouses with over $50B in market cap,
such as Teva Pharmaceutical Industries53
. Including convertible bonds (which behave like stocks), there
are over 1,000 stocks traded in the Israeli stock market, with a total daily volume of $800 million54
.
Securities on the TASE are bought and sold in Israeli Shekels (NIS)55
. This is an advantage to
participating in the TASE, as it provides foreign investors currency diversification. For PE companies that
are interested in making an investment in public Israeli companies, the TASE has an automated exchange
49
"TASE." TASE. Tel Aviv Stock Exchange, n.d. Web. 05 Feb. 2013. <http://www.tase.co.il/eng/pages/homepage.aspx>.
50
51
52
No Author. "Listing News." Luxembourg Stock Exchange. N.p., 17 Dec. 2012. Web. 15 Feb. 2013. <https://www.bourse.lu/listing-news/high-
yield-israeli-bonds>.
53
"TASE." TASE. Tel Aviv Stock Exchange, n.d. Web. 05 Feb. 2013. <http://www.tase.co.il/eng/pages/homepage.aspx>.
54
55

16 |F I N A N C E 6 2 6
system that allows for continuous, simultaneous and instantaneous electronic trading. This system ranks
with the most advanced trading systems used by the world’s leading stock exchanges56
.
Exhibit (5): TASE Trading Statistics (1998-2010)
Year
Daily Turnover
(US$ millions)
Capital Raised in Israel
(US$ billions)
Number of Listed
Companies
Thereof: New Listed
Companies
1998 62 2.0 662 14
1999 86 0.8 654 13
2000 115 2.6 665 37
2001 64 0.8 649 14
2002 51 0.7 624 9
2003 80 0.7 577 4
2004 147 1.6 578 25
2005 223 2.7 584 32
2006 326 2.7 606 44
2007 505 5.2 654 62
2008 547 5.0 642 2
2009 432 2.0 622 4
2010 547 3.6 613 22
Source: TASE57
Additionally, unique to Israel, is access to U.S. capital markets. Currently, there are 60 Israeli companies
listed on the NASDAQ exchange totaling $60.3B in market cap.
Exhibit (6): Israeli Companies Listed on NASDAQ by Sector58
Specifically, pharmaceutical (largely Teva Pharmaceuticals) and technology companies have the highest
ranking market caps. This implies that the political structure and relationship between Israel and the U.S.
enables better access to capital as well as exit opportunities for those that invest in Israeli start-ups
focusing in pharmaceuticals, biotech, or technology. Given the large R&D spend in Israel along with
56
"TASE."
57
"TASE."
58
No Author. Israeli Companies Listed on Nasdaq. 07 Feb. 2013. Online. http://www.nasdaq.com/screening/companies-by-
region.aspx?region=Middle+East&country=Israel
Industry Nasdaq Market Cap
Major Pharmaceuticals 35,236,504,692$
Computer Software: Prepackaged Software 11,672,487,527$
Computer Manufacturing 2,277,594,178$
Telecommunications Equipment 1,739,584,212$
Military/Government/Technical 1,572,672,003$
Computer Communications Equipment 1,491,945,910$
Biotechnology: Biological Products (No Diagnostic Substances) 888,768,281$
Business Services 857,787,699$
Building Materials 655,345,318$
Electronic Components 635,674,666$
Semiconductors 623,528,876$
Medical/Dental Instruments 507,586,031$
EDP Services 494,911,848$
Industrial Machinery/Components 481,985,761$
Radio And Television Broadcasting And Communications Equipment 402,997,304$
Biotechnology: Electromedical & Electrotherapeutic Apparatus 365,404,585$
Department/Specialty Retail Stores 164,088,029$
Food Distributors 70,969,120$
Computer peripheral equipment 64,852,421$
Aerospace 61,196,627$
Building operators 39,817,333$
Real Estate 21,765,798$
Electrical Products 7,620,131$
Grand Total 60,335,088,347$

17 |F I N A N C E 6 2 6
great access to public capital for IPOs, both domestically and in the U.S., VC in Israel (both international
and domestic) as an industry has been able to flourish. As it relates to PE, access to both foreign and
domestic stock markets give PE firms exit opportunities.
Exit Opportunities
The TASE includes market makers to provide liquidity for traded securities, which is good in the event
that an International PE/VC investor needs to exit its position. The market provides investment
mechanisms for both long and short sellers, margin account, and leveraged investments59
. According
to IVC, 2012 was Israel’s best year for hi-tech M&A in a decade, yielding $9.95Bin exits60
. After years of
“tightening the belt” at U.S. tech firms, which saw the decimation of R&D departments in order to satisfy
investors and Wall Street analysts alike, many have turned to Israel as a solution. Israel is more than
happy to sell. Another popular exit strategy amongst PE/VC investors is the IPO. In 2012, however, there
was not a single IPO of a current or former Israeli company61
. This is atypical, especially since NASDAQ
IPOs soared 13.6%62
. Despite 2012, which is in our estimation, an anomaly, IPO, either in or outside of
Israel remains an efficient and an attractive exit opportunity. With the fiscal cliff solved, and the
willingness of investors to deploy capital, as well as PE/VC firms ready to exit (knowing where the
capital gains tax has settled), 2013 and has the makings of prosperous IPO market.
Exhibit (7): Israeli high-tech capital raising 2002-2012 ($M)
59
Shapiro, Levi. "Israeli Tech Funding & Exits in 2012: Plenty of Chutzpah but Show Me Your Instagram | Jerusalem Post - Blogs." Israeli Tech
Funding & Exits in 2012: Plenty of Chutzpah but Show Me Your Instagram | Jerusalem Post - Blogs. The Jerusalem Post, 14 Jan. 2013. Web.
05 Feb. 2013. <http://blogs.jpost.com/content/israeli-tech-funding-exits-2012-plenty-chutzpah-show-me-your-instagram>.
60
Shapiro, Levi. “Israeli tech funding & exits in 2012: Plenty of chutzpah but show me your Instagram”.
61
62

18 |F I N A N C E 6 2 6
Exhibit (8): The Global Venture Capital and Private Equity Country
Attractiveness Index - 2012
Source: http://blog.iese.edu/vcpeindex/63
Trends in Israeli Private Equity and Venture Capital
According to IVC research and corporate law firm GKH, buyout activity in Israel is increasing with the
software sector as the biggest driver. In 2012, Apax and JMI Equity bought out Paradigm Geophysical, an
Israeli oil and gas software specialist, for $1 billion64, 65
. According to Rick Mann, managing of GKH, two
recent drivers were seen in the Israeli M&A market. Given the economic downturn after financial crisis, a
number of larger Israeli shareholder groups needed to de-lever and improve liquidity. In response, Israel’s
Concentration Committee proposed legislation in early 2012 that would restrict the use of pyramid
holding structures as well as prohibit cross-holding in financial and non-financial companies. The thought
is that this promotes the break-up of cross-economy conglomerates66
the proposed legislation requires the
sale – during a limited transition period - of several large Israeli companies, particularly in the fields of
insurance, banking and asset management67
. Although the high-tech sector still attracts most of the
attention from private equity firms, given the pending regulatory reforms, openness to foreign investment
and growing familiarity with private equity, more opportunities for private equity firms will result from
proposed legislation.
63
No Author. http://blog.iese.edu/vcpeindex/
64
Kiel Porter ,‘Tech sector boosts Israeli buyout industry’, Feb 2, 2013
65
Shelach, Shmulik. “Apax, JMI buy Paradigm Geophysical for $1b.” Globes. 11 Jun. 2012.
http://www.globes.co.il/serveen/globes/docview.asp?did=1000756260&fid=1725
66
Bruclhaus, Deringer, Freshfields, ‘Focus on Israel: trends in private equity activity.’
67
Kiel Porter ,‘Tech sector boosts Israeli buyout industry.’

19 |F I N A N C E 6 2 6
Summary of Deals: Role of Public Companies and Private Equity Sponsorship
Israeli Deal Statistics Summary
To summarize the deal statistics, out of a sample of 513 deals, the biggest deal was $8.8B and smallest
deal was $1M. The average deal size was $151.5M with a standard deviation of $687.5M. The deal
statistics is highly skewed towards the top 10 deals, which collectively were $38.1B, which is 55.9% of
all deal dollar volume. A total of 57 deals (11.1% of all deals) made up 80% of deal volume. For deals
involving PE, the average deal size was $129.5M with a standard deviation of $339.0M. This shows that
PE deals in Israel have not reached the same magnitude of deals witnessed within the U.S. and is likely to
continue developing and grow over time.
Table (1): Deal Size Distribution
The pharmaceutical industry was the most active M&A sector in between 1998-2012 and was led by Teva
Pharmaceuticals, a public large scale generic drug manufacturer through strategic acquisitions to bolster
its generic business portfolio. Acquisitions have enabled Teva to extend the reach of its generic drug
businesses internationally, while increasing its ability to partner with large international pharmaceutical
companies and develop better generics. However, most of Teva’s acquisitions were public companies, but
none included PE. Specifically, the $6.3B acquisition of Cephalon, helped Teva expand into branded
pharmaceuticals. In total, Teva Pharmaceuticals drove 39.4% of total deal M&A dollar volume ($27.6B
out of $69.9B) during 1998-2012 through 9 total acquisitions. Six deals were U.S. Targets, only one deal
was domestic, and 8 out of their 9 deals were friendly transactions where they were the sole bidder. The
$-
$1,000.0
$2,000.0
$3,000.0
$4,000.0
$5,000.0
$6,000.0
$7,000.0
$8,000.0
$9,000.0
$10,000.0
Distibution of Deals by Size ($M)
PE Not Involved PE Involved

20 |F I N A N C E 6 2 6
remaining deals, excluding Teva, total $38.6B, with $21.8B driven around semiconductors ($5.4B),
software ($4.3B), machine tools ($4B), telecom ($5.2B), IT Services ($1.6B), and real estate operations
($1.3B), all totaling $21.8B.
During 1998-2012, only 29 deals involved PE firms, totaling $3.8B out of $69.9B (M&A dollar volume)
total transaction value. Most deals were centered in the prepackaged software and computer facilities
management industries. The largest deal involving PE took place in the telecommunication industry by
012 Smile Communications Ltd.’s in 2010. The strategic acquisition of Bezeq: The Israeli
Telecommunications Corp. Ltd, in which 012 Smile Communications purchased the company from
Apax-Saban-Arkin Group, was valued at $1.8B. 012 Smile Communications then rolled Bezeq into B
Communications as a publicly traded entity. A consortium of PE firms, Apax-Saban-Arkin Group, had
privatized Bezeq in 2005 from the Israeli government by acquiring a 30% stake valued at $923M68
. After
five year holding period, the exit of this deal led to an IRR of only 14% with an absolute return of nearly
91%.
The most active firm involving PE was Ness Technologies, which focuses on software engineering,
enterprise applications and services, and distribution of other software businesses. The Israeli based
company based was backed by U.S. PE firms Warburg Pincus and Warburg Pincus Ventures. In 1999,
Warburg Pincus Ventures made its first Israeli outlay, a $35M investment in Ness, enabling the company
to make several strategic acquisitions prior to going public on the NASDAQ69
. These acquisitions allowed
the company to scale up operations with hopes of a higher exit multiples for the PE investors and
founders. On October 1, 2004 Ness held a share price of $12.75 with 38.29 million shares valuing the
company at $488M 70,71,72,73,74,75
. Even when Ness was public, Warburg was still one of its largest holders.
Ness continued to grow via strategic acquisition. During 2006-2010, Ness Technologies made 6
68
No Author. Apax Partners. http://www.apax.com/news/apax-news/2005/october/apax-partners-funds,-saban-capital-group-and-arkin-
communications-(apax-saban-arkin-group)-completes-acquisition-of-controlling-interest-in-leading-israeli-telecom-company-bezeq.aspx
69
Yacoby, Ella. “Warburg Pincus Ventures Leads $35 Mln Investment in Ness Technologies.” Globes, 22 Nov. 1999. Online.
http://archive.globes.co.il/searchgl/Warburg%20Pincus%20Ventures%20Leads%20$35%20Mln%20Investment%20in_h_hd_0L38tDJ0pN3Ct
EJarE2veT6ri.html
70
Alfassy, Yanay. “Ness Technologies buys BlueFlame for $5 mln.” Globes. 04 Nov. 2001. Online.
http://archive.globes.co.il/searchgl/Ness%20Technologies%20buys%20BlueFlame%20for%20$5%20mln_h_hd_0L3GoD30rN3KpCp4uDove
T6ri.html
71
The Market.com Staff. “Ness paying $16m for Czech company APP Group.” The Street. 24 Sept. 2002. Online.
http://www.thestreet.com/story/10043872/1/ness-paying-16m-for-czech-company-app-group.html
72
No Author. IANS. “Israel's Ness buys APAR Infotech for $78 M.” Silicon India News. 14 May 2003. Online.
http://www.siliconindia.com/shownews/Israels_Ness_buys_APAR_Infotech_for_78_M-nid-19478-cid-2.html
73
Konfortas, Yehuda. “Ness Technologies Targets Global Growth”. InformationWeek. 01 Aug. 2005. Online.
http://www.informationweek.com/ness-technologies-targets-global-growth/165700804
74
Yachin, Dan. “Pulling the strings: Warburg Pincus and Ness Technologies share a vision of global expansion.” Globes, 13 May 2003.
http://archive.globes.co.il/searchgl/Warburg%20Pincus%20and%20Ness%20Technologies%20share%20a%20vision_s_hd_0L3KrCZOsN3Ou
DpamDYveT6ri.html
75
Google Finance, Ness Technologies Historical Share Price. http://www.google.com/finance?cid=696018

21 |F I N A N C E 6 2 6
additional strategic acquisitions: 2 in the U.S. valued at $36M, 3 in Europe valued at $105M, and 1 in
Israel valued at $20M. However, due to the rapid expansion and loss in market value, Ness was taken
private after losing nearly $330M in value from its 2006 peak. A merger of subsidiaries was completed in
which Citi Venture Capital International [“CVCI”] purchased Ness for $7.75 per share, a transaction
valued at $307M.76
Ness is part of the growing history of IT Services and tech development within Israel,
specifically around VC. Privatizing Ness is likely to lead to restructuring, followed by another spin off,
and future financial gains for CVCI.
Only one deal involved a PE firm as a direct acquirer: In 2005, GIMV77
, a European investment firm,
acquired Genesis Partners III78
, an Israeli venture capital firm focused on seed and early-stage technology
start-ups. Given the growing entrepreneurial environment, and the likelihood of good exits, it seems that
the secondary market for the fund was a good acquisition target. Additionally, only two deals involved PE
sponsorship of the direct target. One, Aryt Industries purchased Pionet Ventures Capital in order to roll its
medical segment into that entity.79
However, since acquisition, it seems that Aryt has shifted its strategy,
formerly dedicated to Medtech, now primarily focused on military technology and electronic detonators.
One unique deal involved a finance tech start-up. Fundtech LTD., founded in 1993, was a software
product that facilitated electronic payments, prior to the tech bubble. The company was privately invested
in by large Israeli and U.S. PE and VC funds80
. Due to the favorable market for IPO exits, Fundtech went
public March 17, 199881
and was listed on the NASDAQ from then until November 2011, when it was
taken private by GTCR, a Chicago PE firm82
. During the time the company was public, a large Israeli
company – Clal Industries and Investments [“CII”] led large purchases from the private equity companies
holding Fundtech equity.
Private Equity Involved In Transaction
The trend of PE involvement as a percent of total deals has been increasing since 1998, where PE was
involved in 5.7% of deals, and more pronounced since 2005. However, the majority of deal volume
76
Globes’ Correspondent. “Ness Technologies merger completed.” Globes. 16 Oct. 2011. Online.
http://www.globes.co.il/serveen/globes/docview.asp?did=1000690349&fid=1725
77
GIMV, About Us, https://www.gimv.com/view/nl/387051-+Over+Gimv+.html
78
Genesis Partners, About Us – Investment Approach, http://www.genesispartners.com/content.asp?page=Investment_Approach
79
The Marker.com Staff. “Aryt Industries to incorporate medical activity into Pionet Venture Investments”. The Street.com. 02 Oct. 2002.
Online. http://www.thestreet.com/story/10008678/1/aryt-industries-to-incorporate-medical-activity-into-pionet-venture-investments.html
80
Eshel, Tamir. “Apax Leumi Invests $2 Mln in Fundtech”. Globes. 12 June 1997. Online
http://www.globes.co.il/serveen/globes/docview.asp?did=352463
81
Ginsburg, Ami. ”First Wall Street Trading Day, Fundtech Streaks Ahead 43” Globes. 17 Mar. 1998. Online.
http://www.globes.co.il/serveen/globes/docview.asp?did=358920
82
Fundtech Authors. “About Fundtech” Online. http://www.fundtech.com/about/

22 |F I N A N C E 6 2 6
(share of deal dollar volume) still is in favor of non-PE involvement mainly driven by Teva
Pharmaceuticals’ large transactions. As the PE market continues to mature, the trend will likely increase
in favor of PE firms involvement in both frequency of deals and size of deal.
Table (2): PE Involvement in Deals
Given the limited number of transactions that involve PE, we see that over the period of time reviewed
(1998-2012); most of PE’s involvement was not in either direct acquisition or direct selling. PE appears to
make an indirect impact on deals, sponsoring either the target or acquirer, and creating value for their
portfolio companies before exiting through acquisition or IPO.
Table (3): PE Impact on Target/Acquirer or Sponsor on Deal Size
PE’s indirect involvement, through sponsorship to the target or seller (31% of volume and 50.8% of
volume respectively), does have an impact on deals. It is interesting to note that the highest deal average
went to those firms where PE was involved on the target’s or seller’s, side compared to the acquirer’s
side, indicating that PE firms command a premium in sales price (Table 4).
PEInvovlementTrend(%of Deal $M) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 GrandTotal
Share of Volume PENotInvolved 99.68% 79.08% 92.67% 100.00% 99.74% 100.00% 100.00% 98.77% 99.85% 87.53% 99.40% 97.91% 34.14% 97.88% 99.72% 94.63%
Share of Volume PEInvolved 0.32% 20.92% 7.33% 0.00% 0.26% 0.00% 0.00% 1.23% 0.15% 12.47% 0.60% 2.09% 65.86% 2.12% 0.28% 5.37%
GrandTotal 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
PEInvovlementTrend(%of Deal Count) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 GrandTotal
Share of Volume PENotInvolved 97.50% 95.45% 96.83% 100.00% 93.33% 100.00% 100.00% 91.89% 98.00% 90.20% 97.22% 89.47% 82.14% 90.91% 90.32% 94.35%
Share of Volume PEInvolved 2.50% 4.55% 3.17% 0.00% 6.67% 0.00% 0.00% 8.11% 2.00% 9.80% 2.78% 10.53% 17.86% 9.09% 9.68% 5.65%
GrandTotal 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Private EquityInvolvement Sumof TransactionValue ($mil) Private EquityInvolvement Sumof TransactionValue ($mil) Private EquityInvolvement Sumof TransactionValue ($mil)
AcquirerNot PEBacked 69,884$ Target Not PEBacked 69,890$ PENot Involved 66,139$
AcquirerPEBacked 10$ Target PEBacked 4$ PEInvolved 3,755$
GrandTotal 69,894$ GrandTotal 69,894$ GrandTotal 69,894$
Private EquityInvolvement % of DollarVolume Private EquityInvolvement % of DollarVolume Private EquityInvolvement % of DollarVolume
AcquirerNot PEBacked 99.99% Target Not PEBacked 99.99% PENot Involved 94.63%
AcquirerPEBacked 0.01% Target PEBacked 0.01% PEInvolved 5.37%
GrandTotal 100.00% GrandTotal 100.00% GrandTotal 100.00%
Private EquityInvolvement Average of TransactionValue ($mil) Private EquityInvolvement Average of TransactionValue ($mil) Private EquityInvolvement Average of TransactionValue ($mil)
AcquirerNot PEBacked 136$ Target Not PEBacked 137$ PENot Involved 137$
AcquirerPEBacked 10$ Target PEBacked 2$ PEInvolved 129$
GrandTotal 136$ GrandTotal 136$ GrandTotal 136$

23 |F I N A N C E 6 2 6
Table (4): PE Firm Involvement
Given that the majority of PE’s involvement occurs through indirect activity, it is possible to ascertain
that the acquisition or divestiture of parts of their holding company is done to generate value creation
through restructuring, or adding value as seen in the history and transaction of Ness Communications.
From acquirer side, the majority of transactions where PE sponsored the acquirer, value were created in
prepackaged software through total deals, average size of deal and the mix of deals. Most deals took place
in the technology sector, and we expect to see more deals in this space as the sector continues to grow and
mature (Table5).
PE Invovlement Sum of Transaction Value ($mil)
Acquiror 10$
Financial Sponsor to Acquiror 1,169$
Financial Sponsor to Seller 1$
Financial Sponsor to Seller Immediate 16$
Financial Sponsor to Target 1,907$
Financial Sponsor to Target Immediate 135$
Seller 512$
Target 4$
Grand Total 3,755$
PE Invovlement Mix of PE Involvement
Acquiror 0.3%
Financial Sponsor to Acquiror 31.1%
Financial Sponsor to Seller 0.0%
Financial Sponsor to Seller Immediate 0.4%
Financial Sponsor to Target 50.8%
Financial Sponsor to Target Immediate 3.6%
Seller 13.6%
Target 0.1%
Grand Total 100.00%
PE Invovlement Average of Transaction Value ($mil)
Acquiror 10.00$
Financial Sponsor to Acquiror 89.95$
Financial Sponsor to Seller 1.07$
Financial Sponsor to Seller Immediate 16.00$
Financial Sponsor to Target 272.45$
Financial Sponsor to Target Immediate 135.00$
Seller 170.81$
Target 1.81$
Grand Total 129$

24 |F I N A N C E 6 2 6
Table (5): PE Involvement by Sector
On the target side, value was created in the information retrieval industry (telecom), when Bezeq was
taken private, moved to B Communications, and listed on the NASDAQ.
PE Invovlement - Sponsor to Target Sum of Transaction Value ($mil)
Information Retrieval Services 1,763$
Prepackaged Software 74$
Electromedical Equipment 30$
Space Vehicle Equipment, Nec 26$
Business Services, Nec 13$
Grand Total 1,907$
PE Invovlement - Sponsor to Target Mix of Transactions
Information Retrieval Services 92.46%
Prepackaged Software 3.90%
Electromedical Equipment 1.57%
Space Vehicle Equipment, Nec 1.38%
Business Services, Nec 0.68%
Grand Total 100.00%
PE Invovlement - Sponsor to Target Average of Transaction Value ($mil)
Grand Total 272$
PE Invovlement - Sponsor to Acquirer Sum of Transaction Value ($mil)
Grand Total 1,907$
PE Invovlement - Sponsor to Acquirer Mix of Transactions
Information Retrieval Services 92.46%
Prepackaged Software 3.90%
Electromedical Equipment 1.57%
Space Vehicle Equipment, Nec 1.38%
Business Services, Nec 0.68%
Grand Total 100.00%
PE Invovlement - Sponsor to Acquirer Average of Transaction Value ($mil)
Grand Total 272$

25 |F I N A N C E 6 2 6
Deal Solicitation
Trends in solicited deals have declined recently (Table 4). This indicates that firms have a need for exit;
firms may be distressed and in need of liquidity, which we believe is the biggest driver of solicited deals.
In contrast a firm without liquidity problems and is looking for an exit on their own accord during periods
of increased deal solicitation, have their exit prices driven downs as well. Our data reveals that only 3.5%
of deal volume (by dollars) is said to be “solicited.” This means the target was an active divestiture and
the deal is friendly. On average, deals were roughly the same size whether solicited or unsolicited.
Table (6): PE Impact on Deal Solicitation
Tables (7): Share of Solicited Deals Table (8): Impact of PE on Deal
Solicitation
0%
10%
20%
30%
40%
50%
60%
75%
80%
85%
90%
95%
100%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Unsolicited Solicited Solicited by $ Volume %
Deal Type Total Value of All Transactions ($Mil)
Unsolicited 67,435$
Solicited 2,459$
Grand Total 69,894$
Deal Type % of Dollar Volume
Unsolicited 96.48%
Solicited 3.52%
Grand Total 100.00%
Deal Type Average of Transaction Value ($mil)
Unsolicited 136$
Solicited 145$
Grand Total 136$
Deal Type (PE Involved) Total Value of All Transactions ($Mil)
Unsolicited 3,620$
Solicited 135$
Grand Total 3,755$
Deal Type (PE Involved) % of Dollar Volume
Unsolicited 96.40%
Solicited 3.60%
Grand Total 100.00%
Deal Type (PE Involved) Average of Transaction Value ($mil)
Unsolicited 129$
Solicited 135$
Grand Total 129$

24 |F I N A N C E 6 2 6
Additionally, whether a deal is solicited or not, the mix of deal volume that involved PE firms has not
changed much. This indicates that PE firm involvement does not impact whether or not the deal is
solicited or unsolicited. This is shown by percent of deal volume and percent of deals, 3.45% when PE is
involved versus 3.31% when PE is not involved.
When reviewing whether deals began as rumors, only 14% of deal volume (representing only 4 deals at
0.78% of all deals) started as rumors, however, the average transaction size of those rumors was $2.5B
versus non rumors of $118M. This information is skewed by the largest acquisition in Israel during this
time period which was Teva/Barr Pharmaceuticals. None of the deals that started as rumors involved
private equity, which is largely due to the expectation that PE deals are looking to generate returns and
have dedicated timelines for exits. Therefore, a deal rumor is unlikely.
Table (9): Share of Deals Starting as Rumor
Overall, we do not see much deal solicitation in the Israeli market, and part of this is driven by the infancy
of buyouts by PE in Israel. PE’s involvement in deal solicitation is also a function of time, which drives a
firm’s decision for entrance/exit.
Investment Banks and Legal Advisors
Prompted by Humphrey-Jenner, Sautner, and Suchard’s hypothesis that PE will rely on Top Tier banks or
law firms when information is poor, we investigated the frequency in which investment banks and legal
advisors were used in Israel when PE was or was not involved.83
Our analysis of all transactions from
1998-2012 shows that out of all M&A deals, 18.1% of acquirers used a bank for advisory services and
19.8% of targets used bank services. However, when the transaction is cross-border, the likelihood of uses
83
Humphery‐Jenner, Mark, Zacharias Sautner, and Jo‐Ann Suchard. “Cross‐Border Mergers and Acquisitions: The Role of Private Equity
Firms.” January 2013.
Deal Began As Rumor Sum of Transaction Value ($mil)
Not Rumor 60,041$
Rumor 9,853$
Grand Total 69,894$
Deal Began As Rumor Average of Transaction Value ($mil)
Not Rumor 118$
Rumor 2,463$
Grand Total 136$
Deal Began As Rumor Sum of Transaction Value ($mil)
Not Rumor 85.90%
Rumor 14.10%
Grand Total 100.00%

25 |F I N A N C E 6 2 6
a bank increases to 22.5% and 26.2% respectively, indicating a greater need for due diligence because
of unknown risks and policy of cross-border transactions. These percentages do not vary much when PE
is not involved, and due to the small sample of cross-border deals involving PE, it is difficult to discern
the likelihood of hiring a bank when a PE firm is involved. Based on total number of deals, the
investment banks most involved were: Lehman with 13 total deals (5 acquirer and 8 target), Goldman
Sachs (10 deals; 3 target; 7 acquirer), William Blair (7 deals; 7 target, 0 acquirer), Morgan Stanley (7
deals; 5 target, 2 acquirer), Jeffries (7 deals; 5 target, 2 acquirer), UBS Investment Bank (7 deals; 4 target;
3 acquirer), Deutsche Bank and Houlihan Lokey (7 deals; 3 target; 4 acquirer). Interestingly, we found
that not only are top banks involved in the most deals, they also appear to be more focused on the target
or acquirer side, indicating the service each bank provides best.
When the PE firm was the direct acquirer or sponsor to acquirer, investment banks were used 17% of
transactions for acquirer advice (both deals were Goldman Sachs), while 1/3 of the deals had bank
involvement from the target side. When the PE firm was sponsor to the target (both direct or indirect) or
was the seller, banks were used from the acquirer 44% of deals while the target side only used advisory
22% of deals. Out of the 8 domestic deals, only 1 involved investment banks: a $1.8B deal that involved
JP Morgan Chase and Morgan Stanley. While all other domestic deals were less than $20M, none used
banks on either the acquirer or target side. Given the nature and transparency of the Israeli economy and
governance, most deals involving PE appear to further reduce the need for large investment banks unless
the deal is substantial in size; 14 of 15 deals greater than $500M used a bank. When PE and investment
banks were involved in deals, the size grew to amounts greater than $150M (5 out of 21 total deals where
PE was involved). Additionally, when banks were involved, the average deal was $343.4M versus
$38.9M, an 8.9x premium. The premium increases to 9.7x when PE firms and banks were involved
(Table 10).

26 |F I N A N C E 6 2 6
Table (10): Share of Deals and Impact with Bank Involvement
When evaluating Law Firms that were involved in M&A transactions within Israel, we found that top tier
law firms were used more often. Specifically, 35.2% of acquirers used legal firms while 22.8% used legal
advice. Skadden, Arps, Slate, Meagher & Flom were the firm used most, with a total of 21 deals [acquirer
advisor (8 deals) or the target advisor (13 deals)]. The second most used firm was Morrison & Foerster
with a total of 10 deals (7 targets; 3 acquirer). Similar to when banks are involved, when legal firms are
involved the average deal price increases. This could be driven by either higher premiums or by the fact
that more cash is at stake and thus, more due diligence must be done in order to provide higher returns to
the acquiring company. However, multiples are larger when banks are involved and largest when private
equity firms are part of the transaction.
Table (11): Share of Deals and Impact with Legal Involvement
In summary, the more experience a firm has in a country, the more likely they are to be selected as an
advisor. Another distinguishing factor is whether the experience the firm has is on buy or sell side. The
Bank Involvement Average of Transaction Value ($mil) Multiple
Bank Not Involved 38.9$
Bank Involved 343.4$ 8.8 x
Grand Total 136.2$
Grand Total 129.5$
Grand Total 136.7$
Legal Involvement Average of Transaction Value ($mil) Multiple
Legal Not Involved 37.3$
Legal Involved 358.6$ 9.6 x
Grand Total 136.2$
Grand Total 129.5$
Grand Total 136.7$

27 |F I N A N C E 6 2 6
transaction experience indicates that if an advisor, either a bank or law firm, has experience in buy or sell
side, they are likely to get better terms for their client, rather than being a universal advisor that does both
buy and sell. Also, the data shows that involving both banks and legal advisors increases with the deal
size. The average deal size is nearly 8-15x greater than when an advisor (both bank and legal) is not
involved. Again, part of this may be a premium paid, but it is likely due to the transaction’s size and the
amount of cash at stake.
Exhibit (9): Key Bank and Legal Advisors by Number of Deals
Acquiror Legal Advisor Number
of Deals
Target Legal Advisor Number
of Deals
Acquiror Advisors Number of Deals Target Advisors Number of Deals
Weil Gotshal & Manges 8 Skadden, Arps, Slate, Meagher & Flom 13 Lehman Brothers 8 William Blair & Co 7
Skadden, Arps, Slate, Meagher & Flom 8 Morrison & Foerster 7 Goldman Sachs & Co 7 Lehman Brothers 5
Wilson Sonsini Goodrich & Rosati 5 Gibson Dunn & Crutcher 3 JP Morgan & Co Inc 5 Morgan Stanley 5
Brobeck Phleger & Harrison LLP 5 Cleary Gottlieb Steen & Hamilton 3 CIBC World Markets Inc 4 Jefferies & Co Inc 5
Bryan Cave LLP 5 Paul, Hastings, Janofsky & Walker 3 Deutsche Bank 4 UBS Investment Bank 4
White & Case LLP 4 Davies Ward Phillips & Vineberg LLP 3 Houlihan Lokey 4 Houlihan Lokey 3
Willkie Farr & Gallagher 4 Wilson Sonsini Goodrich & Rosati 3 UBS Investment Bank 3 Salomon Smith Barney 3
Latham & Watkins 4 Shearman & Sterling LLP 2 Salomon Smith Barney 3 Citigroup 3
O'Melveny & Myers 4 Proskauer Rose LLP 2 John East & Partners Ltd 3 Deutsche Bank 3
Jones Day 4 Paul, Weiss 2 Citigroup Global Markets Inc 3 Goldman Sachs & Co 3
Morrison & Foerster 3 Lovells 2 Credit Suisse First Boston Corp 3 Thomas Weisel Partners 3
Sullivan & Cromwell 2 Shearman & Sterling 2 Credit Suisse Group 3 Societe Generale 2
Nishimura & Asahi 2 Davis Polk & Wardwell 2 Citi 2 RBC Capital Markets 2
Clifford Chance 2 Dewey, Ballantine, Bushby, Palmer & Wood 2 Jefferies & Co Inc 2 Oppenheimer & Co Inc 2
Arnold & Porter 2 Gray Cary Ware & Freidenrich 2 Morgan Stanley 2 Credit Suisse First Boston 2
Covington & Burling 2 Greenberg Traurig 2 Broadview Associates 2 Bank of America Merrill Lynch 2
Simpson Thacher & Bartlett 2 Foley & Lardner 1 Collins Stewart Ltd 1 Merrill Lynch 2
DLA Piper Rudnick Gray Cary LLP 2 Nixon Peabody LLP 1 Perella Weinberg Partners LP 1 Credit Suisse Group 2
Vinson & Elkins LLP 2 Meitar Liquornik Geva & Co 1 Citigroup 1 Daiwa Sec Capital Markets 2
Greenberg Traurig 2 Freehills 1 Credit Suisse First Boston/ CS 1 JP Morgan 2
Winston & Strawn 2 Chadbourne & Parke 1 Rothschild 1 Broadview Associates 2
Herzog Fox & Neeman 2 Fulbright & Jaworski 1 CIBC Oppenheimer 1 Hambrecht & Quist 2
Cleary Gottlieb Steen & Hamilton 2 Weil Gotshal & Manges 1 Merriman Capital Inc 1 America's Growth Capital 1
Shearman & Sterling 1 Amit Pollak Matalon & Ben-Naftali Erez & 1 Bank of America Merrill Lynch 1 Robert W Baird & Co Inc 1
Fenwick & West LLP 1 Morris Nichols Arsht & Tunnell 1 Needham & Co LLC 1 Citi 1
Sullivan & Worcester LLP 1 Goldfarb Levy Eran & Co 1 Evercore Partners 1 Fleet Boston Corp 1
Fried Frank Harris Shriver & Jacobson 1 Debevoise & Plimpton 1 RBC Capital Markets 1 Communications Equity 1
Osborne Clarke 1 Goodwin Procter LLP 1 Financiere Wargny 1 Generale Bank 1
Frost & Jacobs 1 Eversheds 1 Seymour Pierce Butterfield Limited 1 CIBC World Markets Inc 1
Skadden Arps Slate Meagher & Flom (Inter 1 Gorrissen & Federspiel 1 Barclays 1 BMO Capital Markets 1
Fulbright & Jaworski 1 Troutman Sanders LLP 1 Chase Manhattan Bank PLC 1 Avenir Finance 1
Blank, Rome, Comisky & Mccauley 1 Gowling Lafleur Henderson LLP 1 Hambrecht & Quist Inc 1 Grant Thornton LLP 1
Gibson Dunn & Crutcher 1 Mayer Brown Rowe & Maw 1 Mooreland Partners LLC 1 Rothschild 1
Baker & McKenzie 1 Clifford Chance 1 Alliant Partners 1 Wit Soundview Group Inc 1
Gray Cary Ware & Freidenrich 1 Morgan Lewis & Bockius 1 Morgan Stanley & Co 1 Teather & Greenwood Ltd 1
Pekin & Bayar 1 Willkie Farr & Gallagher 1 Bank of America Corp 1 Advest Inc 1
CMS Cameron McKenna 1 Arnold & Porter 1 Oppenheimer & Co Inc 1 BDO Stoy Hayward 1
Dewey Ballantine LLP 1 Cooley Godward LLP 1 BT Alex. Brown/Wolfensohn 1 Broadview 1
Gross Kleinhendler Hodak Halevy Greenber 1 Bonelli Erede e Pappalardo 1 PricewaterhouseCoopers 1 Morgan Stanley & Co 1
Squire Sanders & Dempsey LLP 1 Heenan Blaikie 1 Unterburg, Towbin Co 1 Imperial Capital LLC 1
Heller Ehrman LLP 1 Pillsbury Madison & Sutro 1 Rosario Capital Ltd 1 Pacific Crest Securities Inc 1
DLA Piper 1 Herbert Smith/Gleiss Lutz/Stibbe 1 KPMG 1 Arma Partners LLP 1
Heller Ehrman White & McAuliffe 1 Dorsey & Whitney LLP 1 Canaccord Adams 1 RBC Dominion Securities 1
WilmerHale 1 Kennedy Covington Lobdell & Hickman 1 KPMG Corporate Finance 1 JMP Securities LLC 1
Cravath, Swaine & Moore 1 Simpson Thacher & Bartlett 1 Thomas Weisel Partners 1 Roth Capital Partners Inc 1
Dewey & LeBoeuf LLP 1 Kramer Levin Naftalis & Frankel 1 Leerink Swann & Co 1 Catalyst Advisors BV 1
Hogan Lovells 1 Sullivan & Worcester LLP 1 UBS Warburg LLC 1 Sagent Advisors Inc 1
Orrick Herrington & Sutcliffe LLP 1 Latham & Watkins 1 Bear Stearns & Co Inc 1 Keefe Bruyette & Woods Inc 1
Yigal Arnon & Co 1 Wachtell Lipton Rosen & Katz 1 Merrill Lynch & Co Inc 1 Corum Group Ltd. 1
Osler Hoskin & Harcourt LLP 1 Lefevre Pelletier 1 BDO Stoy Hayward 1 Lazard 1
Addleshaw Goddard 1 Fox Williams 1 Grand Total 92 Banc of America Securities LLC 1
Proskauer Rose LLP 1 Cooley LLP 1 Chase H&Q 1
Kirkland & Ellis 1 Allen & Overy 1 UBS Warburg 1
Sidley Austin Brown & Wood 1 Gunderson Dettmer Stough Villeneuve Fran 1 CIBC Wood Gundy Securities 1
Arsene Taxand 1 Grand Total 91 Bear Stearns & Co Inc 1
SJ Berwin 1 Morgan Keegan Inc 1
Linklaters 1 Healthcare Growth Partners Inc 1
Bar & Karrer 1 Grand Total 101
WongPartnership LLP 1
Dewey, Ballantine, Bushby, Palmer & Wood 1
Mayer Brown LLP 1
Uria Menendez 1
McDermott Will & Emery 1
Bell Gully 1
Morgan Lewis & Bockius 1
Araoz y Rueda 1
Dechert 1
Cooley Godward LLP 1
Munger Tolles & Olson 1
Fladgate Fielder 1
Musat & Asociatii 1
Loyens & Loeff 1
Katten Muchin & Zavis 1
Grand Total 128
Banking AvisoryLegal Advisory

28 |F I N A N C E 6 2 6
Impact of Cross-Border Transactions In Israel
Cross-border transactions account for $56.8B of all deal value and 324 deals or 63% of deals. Again, this
is highly driven by the largest transactions of Teva Pharmaceuticals. Most cross-border transactions in
Israel specifically involving banks firms were through advising the acquiring company. This seems to
indicate that most of the value creation was through expanding outside Israel, and even more specifically,
developed nations both in Europe and the U.S. By evaluating the sectors as well, we notice that the
majority of the deals were in the tech sector or medical sector which are core to the success of Israeli
economies. Given the success of venture back startups, the ability for non-Israeli companies to find
suitable acquisition targets with minimal risks is high. Thus far, the role of PE in cross-border deals has
been minimal because VC backed startups are unlikely to be leading major acquisitions and the PE
market within Israel is still developing. However, what is noticeable is the role of international PE firms
looking to acquire Israeli businesses. Starting with the role of U.S. private equity purchasing Ness
Technology. Additionally, out of the all the cross-border deals involving PE, most included the use of
banks, and primarily with the PE being the sponsor to the acquirer. This seems to indicate that even with
robust due diligence processes supporting the PE sponsored firms, that the connections and experience in
cross-border transactions is beneficial to value creation and risk mitigation when acquiring businesses in
foreign countries (Table 12).
Table (12): Cross Border M&A with Bank Involvement
.
AcquirerIndustry AcquirorName
Transaction
Year
TargetName FinancialSponsorRoleDescription AcquirorNation TargetNation AcquirorAdvisors TargetAdvisors Total
BusinessServices,Nec eBayInc 2011 AppcheeApplicationsLTD FinancialSponsortoTarget UnitedStates Israel (blank) (blank) 13$
ComputerFacilitiesManagement NessTechnologiesInc 2006 InnovaSolutions FinancialSponsortoAcquiror Israel UnitedStates (blank) (blank) 25$
2007 MS9ConsultingLLC FinancialSponsortoAcquiror Israel UnitedStates (blank) (blank) 11$
SelestaEspanaSAU FinancialSponsortoAcquiror Israel Spain (blank) (blank) 13$
SelestaSpA FinancialSponsortoAcquiror Israel Italy (blank) (blank) 25$
2008 Logosas FinancialSponsortoAcquiror Israel CzechRepublic (blank) CorumGroupLtd. 67$
DepositoryInstitutions BankLeumiLeIsraelBM 2011 BanqueSafdieSA FinancialSponsortoAcquiror Israel Switzerland GoldmanSachs&Co (blank) 148$
ElectromedicalEquipment SyneronMedicalLtd 2009 PrimaevaMedicalInc FinancialSponsortoTarget Israel UnitedStates (blank) (blank) 30$
Investors,Nec GIMV 2005 GenesisPartnersIII Acquiror Belgium Israel (blank) (blank) 10$
PlasticsFoamProducts BroadwayIndustrialGrpLtd 2010 PinanotechLtd FinancialSponsortoAcquiror Singapore Israel (blank) (blank) 1$
PrepackagedSoftware BMCSoftwareInc 1999 NewDimensionSoftwareLtd FinancialSponsortoAcquiror UnitedStates Israel GoldmanSachs&Co CIBCWoodGundySecurities 620$
2000 OptiSystemsSolutionsLtd FinancialSponsortoAcquiror UnitedStates Israel (blank) WitSoundviewGroupInc 70$
IncrediMailLtd 2011 SmileboxInc FinancialSponsortoTarget Israel UnitedStates (blank) (blank) 40$
RealNetworksInc 1999 Webglide FinancialSponsortoAcquiror UnitedStates Israel (blank) (blank) 10$
RetalixLtd 2005 TCISolutionsInc FinancialSponsortoTarget Israel UnitedStates CitigroupGlobalMarketsInc (blank) 34$
SemiconductorsandRelatedDevices ConexantSystemsInc 2000 NovanetSemiconductor FinancialSponsortoAcquiror UnitedStates Israel (blank) FleetBostonCorp 158$
MicrosemiCorp 2007 PowerDsineLtd Seller UnitedStates Israel ThomasWeiselPartners Citigroup 275$
SpaceVehicleEquipment,Nec ThalesSA 2009 CMTMedicalTechnologiesLtd FinancialSponsortoTarget France Israel Rothschild (blank) 26$
SubdividersandDevelopers,Nec AlrovPpty&LodgingsLtd 2010 HotelLutetia FinancialSponsortoTargetImmediate Israel France (blank) (blank) 135$
SurgicalandMedicalInstruments 3MCo 2010 AttentiHoldingsSA Seller UnitedStates Israel (blank) RobertWBaird&CoInc 230$
GrandTotal 1,942$
Cross-BorderPrivateEquityDealsInvolvingInvestmentBanks

29 |F I N A N C E 6 2 6
Additional Detail Regarding Deal Activity
As PE buyout is at its early stage in Israel, the M&A activity in the private equity sector only accounts a
marginal portion of total activity in Israel. Exhibit 1 shows from 1998 to 2012, PE backed deals only
accounts 5.37% of total value of M&A transactions. Foreign investors play an active role in Israel market.
Out of 29 transactions, 17 are cross-broad deals. Given the numbers and value of historical deals (Exhibit
2), 3 medium to large size deals (> $ 200 million) occupied more than 70% value of total deals by PE
firms.
Table (13): 1998~2012 Israel PE M&A Transaction Value vs. Total M&A Value
Table (14): 1998~2012 Israel PE M&A Transaction
The largest deal was made in telecommunication industry. In 2010, the controlling interest in Bezeq, held
by the Apax-Saban-Arkin group [“Apax”], was sold to 012.Smile Communications Ltd, which was later
$0
$5,000
$10,000
$15,000
$20,000
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
PE Involved M&A OTHERS M&A
0
1
2
3
4
5
6
0
400
800
1200
1600
2000
2400
1998 1999 2000 2001 2002 2003 3004 2005 2006 2007 2008 2009 2010 2011 2012
TransanctionValue($inmillion)
NumberofTransanctions(#)

30 |F I N A N C E 6 2 6
on renamed as B Communication, a subsidiary of Shaul Elovitch's Eurocom Group, for $1.75 billion.
Apax acquired 30%, or Bezeq share, at $972 Million when Bezeq was officially privatized in 200584
.
Apax is a global private equity and venture capital firm which was headquartered in London. It is one of
the oldest and largest private equity firms operating on an international basis, ranked the seventh largest
private equity firm globally. It have raised approximately $35 billion (USD) dating back to 196985
. Apax
invests exclusively in certain business sectors including telecommunications, information technology,
retail and consumer products, media, healthcare and financial and business services. In the early stage of
the company, it dedicated to making investment in venture capital in Europe and US. From 1993, the
company started to invest in buy-outs and raise 'balanced funds' with a growing portion of buy-outs over
venture capital86
. By now, Apax has invested in portfolio companies at all stage. In 1994, Apax open its
office in Tel Aviv. It is one of the earliest PE firms step into Israel market.
The buyer, Eurocom, one of the largest private holding groups in Israel, was acquired by Shaul Elovitch
in 198587
. Shaul Elovitch is an Israeli businessman who was born in 1949 in Poland and made Aliyah to
Israel when he was two years old. He joined his father-in-law's small business of installing intercoms and
television antennas and importing telephones. Partnering with Tadiran, Elovitch became the exclusive
distributor in Israel of Panasonic's line of office appliances. In 1993, Elovitch became Nokia’s exclusive
distributor in Israel. A year later Cellcom entered Israel's cellular network arena and became a client of
Eurocom's Nokia phones, and together the two rivaled Pelephone's Motorola-based dominance of Israel's
mobile phone market. With exclusive status in mobile market, Shaul Elovitch had ambitions to move to
telecommunication market. However, he failed various attempts to establish himself in Israel's
communication sector since the late 1990s, including a failed move to compete with Bezeq through a
company named Ofek. In 2009, Shaul Elovitch was seriously contemplating the acquisition of either
Bezeq or Partner Communications Company. On 14 April 2010 the ownership of Bezeq was transferred
from the Apax-Saban-Arkin group to an indirect subsidiary of Eurocom, B Communications.
Another typical case was that in 1999, BMC Software Inc., a Houston-based maker of corporate software,
bought an Israel-based New Dimension Software Ltd. for more than $650 million in cash as it seeks to
84
No Author.‘Bezeq’ http://en.wikipedia.org/wiki/Bezeq
85
No Author. ‘Apax Partners’ http://en.wikipedia.org/wiki/Apax_Partners
86
Apax. http://www.apax.com/inside-apax/our-company/our-history.aspx
87
No Author. ‘Shaul Elovitch’ http://en.wikipedia.org/wiki/Shaul_Elovitch

31 |F I N A N C E 6 2 6
expand its sales abroad and gain new technology88
. At the beginning, BMC primarily wrote software for
IMB mainframe computer. Starting from mid-1990s, the company’s growth rate increased through
acquisitions of both small and large software firms. From 1994 to 2009, BMC acquired a total of 32
firms. Given its need for capital, BMC received financial sponsorship from Advent International Corp
(Advent), an American global private equity firm focused on buyouts of companies in Western and
Central Europe, North America, Latin America and Asia89
. In North America, it actively acts on upper-
mid-market buyouts focusing on growth opportunities, cross-border transactions and strategic
repositioning90
. Currently, BMC is still part of Advent investment in Technology sector. In 2011, BMC
recorded annual revenue of $2.1 billion, making it one of the 20 largest software companies, based on
revenue, for that year91
. Its stock price soared from $37.16 on Oct 30, 1999 to $51.67 on Jul 8, 2011. Even
after financial crisis, BMC’s value has remained relatively high, currently priced at $42.1792
.
The two presented cases are indicative of the active role that International PE firms play within Israel
(whether they’re the buyer or seller). Most of the International PE firms have a long history in the VC
sector and have expertise and investment experience in technology sector. This would explain the
motivation behind international firms, seeking opportunities in Israel: these companies are attracted to
Israel’s entrepreneurship in high-tech industry. PE firms have a pattern of seeking strategic deals to
increase value of their portfolio companies under management.
Cumulative Abnormal Returns (CAR)
Evaluating the cumulative abnormal returns (CAR) for the deals below, which were selected because of
high visibility due to U.S. exchanges, frequency of transaction by company (NSTC), and large U.S. based
companies with unique acquisitions, we see that CAR exists only for a few deals, specifically the Retalix
acquisition of TCI Solutions Inc. (2005), and Ness Technologies of Innova Solutions (2006), and Ness
Technologies of Logos (2008). While it is likely that positive CAR exists for other deals, the theory that
PE firms help to increase CAR for acquisitions is difficult to detect because of the limited and nascent PE
Buy-out market in Israel. Additionally, the largest CAR is seen with the earliest two deals prior to the
global recession in 2008. Uniquely, Ness Technologies’ Acquisition of Logos as still managed to create
88
No Author.‘BMC’ http://en.wikipedia.org/wiki/BMC_Software_Inc
89
No Author. ‘Advent International” http://en.wikipedia.org/wiki/Advent_International
90
No Author. http://www.adventinternational.com/investmentdata/Pages
91
No Author. ‘BMC’ http://en.wikipedia.org/wiki/BMC_Software_Inc
92
No Author. http://www.bloomberg.com/

32 |F I N A N C E 6 2 6
positive CAR in the during Q4 2008 when the SP 500 returned -49.6% from peak in January 2008 to
2008 lows in November 2008. Also, the few U.S. acquisitions show flat to negative CAR indicating that
the market did not see market favorability in the cross-border transaction. Lastly, the largest deals seem
to show nearly neutral CAR indicating that the size of acquisition may have a negative impact on the size
of the return for the acquirer.
Table (15): Calculated CAR by Transaction
Overall Attractiveness and Challenges
Challenge 1
In Israel, the citizenry has been infected with the entrepreneurial spirit; “everybody and his brother-in-law
seem to be starting a company.”93
Starting a business is easier than ever, thanks to IT advances94
.
However, despite the intellectual capital and motivation necessary to undertake such ventures, there is a
shortage of funding: “there's a plethora of opportunities at a very early stage to raise $20,000 or $100,000
to get a minimum viable product out there,” says Liat Aaronson, the executive director of the Zell
Entrepreneurship Program, a scheme for final-year undergraduates at IDC Herzliya near Tel Aviv95
. The
difficult bit is turning small firms into bigger ones. Lack of early stage ($1-$2M) Israeli VC is commonly
cited as the culprit.96
However, despite less VC funding, the figures demonstrate the strength of Israel's
high-tech industry97
. In 2012, Israel entrepreneurs saw investors shifting back into early stage and seed
investments with a five-year record $146 million raised by 157 seed companies98
. "While investment by
93
The Economist Staff. "What next for the Start-up Nation."
94
95
96
97
98
CAR by Transaction
Target Name Acquiror Name Ticker Exchange Acquiror Nation Date Complete Deal Size CAR
Banque Safdie SA Bank Leumi Le Israel BM LUMI TELAVIV Israel 12/1/2011 148$ 0.53%
Appchee Applications LTD eBay Inc EBAY Nasdaq United States 9/8/2011 13$ -0.23%
Attenti Holdings SA 3M Co MMM NYSE United States 10/20/2010 230$ 0.01%
Primaeva Medical Inc Syneron Medical Ltd ELOS Nasdaq Israel 11/9/2009 30$ -0.51%
Logos as Ness Technologies Inc NSTC Nasdaq Israel 10/1/2008 67$ 1.36%
Selesta SpA Ness Technologies Inc NSTC Nasdaq Israel 9/5/2007 25$ -6.37%
Selesta Espana SAU Ness Technologies Inc NSTC Nasdaq Israel 1/29/2007 13$ -1.56%
PowerDsine Ltd Microsemi Corp MSCC Nasdaq United States 1/9/2007 275$ -0.05%
Innova Solutions Ness Technologies Inc NSTC Nasdaq Israel 5/8/2006 25$ 2.59%
TCI Solutions Inc Retalix Ltd RTLX Nasdaq Israel 6/30/2005 34$ 8.56%
Grand Total 860$

33 |F I N A N C E 6 2 6
Israeli VC funds is shrinking, foreign VCs as well as corporate and private investors are gradually
increasing their investments99
.
Challenge 2
Building a business requires more than money and technology. Companies need customers. With 7.6m
people, there simply aren’t enough people in Israel100
. It’s not a problem that Israeli firms will be
purchased by International investors at some point; however, the trend is that Israeli firms are becoming
global from the start101
.
Challenge 3
Building businesses also requires people to be an employee. In a nation of start-ups, many people want to
be their own boss. Due to the amount of start-ups, talent risks being thinly spread102
. While many people
possess the intellectual cache needed to create a business, few can find employees, and of those
entrepreneurs that attract talent, some want to go it alone, looking for a big pay day. Several companies
have rejected offers of hundreds of millions of dollars only to fail a few years later.
Conclusion
While Israel’s PE industry is still developing, the access to efficient capital markets will continue to help
it grow and develop. Given the government’s role in shaping and developing VC and R&D spending
within the country, it is likely to take longer for PE to catch up to the successes that the VC industry has
had. Additionally, when comparing the creation of value in Israeli businesses, we anticipate more
acquisitions of both startups and businesses that have gone public, but where initially VC backed start-
ups. Overall, the Israeli PE/VC market is highly efficient and enables businesses to develop, expand, and
flourish in a globally competitive market. Israeli companies will continue to be a part of global PE’s
investing portfolio for the foreseeable future.
99
100
101
102

34 |F I N A N C E 6 2 6
Appendix:
Trade Agreements
Free Trade
Area Agreements
Protection of
Inves tments
Avoidance of
Double Taxation
Agreements
on R&D
MFN Trade
Agreements with non
WTO Members
Canada Albania Aus tria Funds Kazakhs tan
Mexico Argentina Belarus Canada Rus s ian Fed.
U.S.A Armenia Belgium Singapore Ukraine
Azerbaijan (3) Brazil South Korea
E.U. Belarus Bulgaria
United
Kingdom
Uzbekis tan
E.F.T.A. Bulgaria Canada
Parallel
Funding
Standardization &
Product Certification
MERCOSUR (3) China(3) China Argentina Moldova
Turkey Croatia
Belgium/
Flanders
Ukraine
Qualified Indus trial
Zones (QIZ)
Agreements
Croatia Czech Rep Brazil Turkey
Egypt Cyprus Ethiopia(3) China
Statement of Intent
– MOITAL and US
Cons umer Product
Safety Commis s ion
(CPSC)
Jordan Czech Republic Finland Denmark
El Salvador France Finland
Germany France
Es tonia Greece Germany
Ethiopia Hungary Greece
Georgia India India
Germany Ireland Ireland
Guatemala (3) Italy Italy
India Jamaica Maryland
Kazakhs tan Japan Netherlands
Latvia Latvia(3) Norway
Lithuania Lithuania Ontario/CA
Moldova Luxemburg(3) Portugal
Mongolia Mexico Slovenia
Poland Moldova Spain
Netherlands Sweden
Romania Norway Taiwan
Philippines Turkey
Serbia- Montenegro Poland Uruguay(3)
Slovakia Portugal Victoria/Au
Slovenia Romania Virginia(3)
South Korea Rus s ian Fed E.U
South Africa(3) Singapore
Seventh
Framework
Program
Thailand Slovenia CIP (EIP)
Turkey Slovak Republic U.S.
Turkmenis tan S.Africa
U.S. Science
and Technology
Commis s ion
Ukraine S.Korea
BIRD
Foundation
Uruguay Spain
Uzbekis tan Sweden Other
Thailand Eureka
Turkey Galileo
U.K. Clus ters
U.S.A
Ukraine(3)
Uzbekis tan
(1) Under negotiation
(2) Initiated
(3) To be ratified
(4) Awaiting re-es tablis hment
(5) Re-initiated
Source: Ministry of Industry & Trade, Foreign Trade Department, International Division.
Israel’s International Trade and Economic Agreements
July 2008

Global Private Equity in Israel: Where Innovation Meets Capital

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