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Israel’s Evolving Relationship with the U.S./media/files/insights/...HANAN HAVIV PARTNER HERZOG...

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112SS October 2016 | The American Lawyer By Howard Stock Israel’s Evolving Relationship with the U.S. ISRAEL SPECIAL SPONSORED SECTION
Transcript
  • 112SS October 2016 | The American Lawyer

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    By Howard Stock

    Israel’s Evolving Relationship with the U.S.

    ISRAEL

    SPECIAL SPONSORED SECTION

  • The American Lawyer | October 2016 113SS

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    “As building roads brings more cars, the entrance of multinational law !rms seems to bring more work for Israeli law !rms.”

    —JANET LEVY PAHIMA, HERZOG FOX & NEEMAN

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    TOLEDANO & CO.

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  • #TozziniFreire40anos

    40 years of achievements

    Looking ahead to the next 40 years

    tozzinifreire.com.br

  • Israel is a leading destination for foreign investment,

    far beyond anything that its small size and short history

    might imply. With an exceptional concentration of

    innovators and cutting-edge technologies, along with

    one of the most highly educated, entrepreneurial and

    multi-cultural workforces in the world, Israel has turned

    into a very interesting place for investors.

    Israel has a liberal investment environment, and most

    areas are open to foreign investors. Over the years

    the Israeli economy has proved itself to be extremely

    stable, providing a solid investing environment for

    international investors.

    Looking forward, the Government recently proposed

    to reduce corporate tax rates for technology companies

    to 6%-12%, making the Israeli economy more attractive

    for investment by foreign IP based companies. The

    reduction is in line with the OECD policy for taxation

    of IP income by the country in which the income-

    generating activities take place. With its strong

    technologically-skilled workforce and concentration

    of multinational R&D centers, Israel is trying to take

    advantage of these changes to encourage global

    companies to increase their investments in Israel.

    M&A ACTIVITY

    In the last few years, foreign investment in Israel

    has significantly increased. There are reasons to

    expect that this trend will continue. One significant

    “driver” is the enactment of the Law for Promotion

    of Competition and Reduction of Concentration

    (the “Competition Law”). The purpose of the

    Competition Law is to reduce concentration in the

    marketplace and to encourage competition.

    The Concentration Law was enacted to address

    what was seen as the ‘over-concentration’ of holdings

    in the Israeli economy — traditionally dominated

    by large conglomerates, where perhaps 20 families

    controlled 25% of the listed Israeli companies

    and 50% of the total market share on the Tel Aviv

    Stock Exchange, one of the highest concentrations

    among developed economies. The Competition

    Law prohibits the holding by one entity of both

    significant financial enterprises and real (non-financial)

    enterprises. As a result, a number of major financial

    institutions and real enterprises are required to be sold

    by December 2019.

    Here are a few examples to demonstrate foreign

    involvement in the Israel M&A scene. In July 2016,

    BC Partners, a leading global private equity firm,

    and Public Sector Pension Investment Board, one

    of Canada’s largest pension investment managers,

    announced the acquisition of Keter Group, a resin

    consumer products provider, based on a company

    valuation of US$1.6 billion. Also in 2016, Cisco

    spent US$320 million on Leaba, a chip-design start-up,

    and US$293 million on CloudLock, a developer

    of security technologies for the enterprise cloud;

    Sony acquired chip developer Altair for US$212 million;

    Oracle bought cloud computing specialist Ravello

    for US$500 million, followed by the acquisition of

    advertising start-up Crosswise; Intel acquired Replay

    Technologies, a 3D video start-up, for US$175 million;

    and Dentsply Sirona acquired MIS, a dental implant

    systems manufacturer, for US$375 million.

    Another factor contributing to increased M&A

    activity in Israel is the growing interest from Asian

    investors, particularly from China and Japan, and

    particularly in Israeli technology. In 2015, the

    Chinese State-owned company Brightfood acquired

    control of Tnuva, Israel’s largest dairy concern, in a

    deal valuing Tnuva at approximately US$2.2 billion.

    Additional examples include XIO Group’s US$510 million

    purchase of Lumenis, and the acquisition of Altair

    by Sony.

    FOREIGN INVESTMENTS

    IN ISRAEL

    YUVAL MEIDAR

    PARTNER

    HERZOG FOX & NEEMAN

    DANA ZURNEUMANN

    PARTNER

    HERZOG FOX & NEEMAN

    HANAN HAVIV

    PARTNER

    HERZOG FOX & NEEMAN

    “Israel is by many measures the country relative to its population that has done the most

    to contribute to the technology revolution.” (Bill Gates)

    118SS October 2016 | The American Lawyer

  • Private equity firms have also created a

    noticeable investment trend in the Israeli

    market, encouraged by valuations of Israeli

    companies which tend to be lower compared

    to other developed economies. Two

    significant transactions of foreign private

    equity funds are the buyout of ClickSoftware

    by Francisco Partners for US$438 million and

    the acquisition of Xura (formerly Comverse)

    for US$643 million by Siris Capital.

    HITECH SECTOR

    It has long been a cliché to call Israel the

    “Start-Up Nation”. Israel is known globally

    for its hi-tech industry and its strong

    R&D activity - Israel is a world leader in

    investment in R&D (4.8% of the country’s

    GDP), and has the highest number of

    technology start-ups per capita in the world.

    With a population of only 8 million, Israel

    created 1,400 new technology start-ups

    in 2015 alone and there are now more

    technology companies from Israel listed on

    the NASDAQ Stock Market than any other

    country except the U.S. and China. Israel

    attracts more venture capital relative to the

    size of its economy than any other country

    in the world. According to the IVC-KPMG

    High-Tech 2015 Survey, capital raised by

    Israeli tech companies in 2015 set a record

    —708 deals accounted for US$4.43 billion

    —the highest annual amount and number

    of transactions ever recorded. The amount

    reflected a 30% increase from the previous

    record in 2014, when 688 deals attracted

    US$3.47 billion. In 2015, foreign investors,

    who are responsible for more than 50%

    of yearly investment in Israeli start-ups, spent

    an additional US$6.5 billion on technology

    acquisitions.

    The significant growth of M&A and

    investment activity in Israel has continued

    in the first half of 2016. According to the IVC

    H1/2016 Exits report, there were 45 M&A

    transactions for a total value of US$3.32

    billion. Beyond M&A and venture finance,

    foreign companies have expanded their

    innovation toolkit to include R&D centers,

    incubators and accelerators, and investment

    arms, all of which are proliferating in Israel

    across a variety of technology sectors.

    The country has become a vibrant hi-tech

    laboratory where global companies are

    testing new models for innovation. Over 280

    multinational companies operate R&D centers

    in Israel, including the likes of Microsoft,

    Google, Facebook, Apple, IBM, Qualcomm,

    Intel, Samsung, HP, Siemens, GE, Philips, Cisco,

    Barclays and LG.

    OIL AND GAS SECTOR

    The discovery in 2009 of the ‘Tamar’ gas field,

    followed by the discovery of ‘Leviathan’, one

    of the largest deep-water discoveries of gas

    worldwide, has turned Israel into a significant

    player in the Oil and Gas Sector. After a major

    public outcry against the undue power of

    the monopoly that effectively controlled

    the offshore gas discoveries, (resulting from

    the fact that the two major offshore gas

    discoveries, the Tamar and Leviathan fields,

    are both owned by the same consortium

    (Noble Energy and the Delek Group)), the

    Israeli Government has now adopted a

    “gas outline agreement”. The agreement is

    aimed at dissolving the monopoly in the

    gas industry, determining the entitlement to

    export gas from Israel, and setting the rules

    under which the gas companies will sell

    their gas. The agreement removes several

    uncertainties surrounding the commercial

    exploitation of the offshore gas discoveries,

    which is likely to attract new foreign investors

    to Israel in the coming years.

    2015 marked a turning point in the M&A

    and investment activity in the Israeli market,

    with exceptionally diverse investments by

    international investors. The high volume of

    investment activity in the first six months of

    2016 suggests that this trend will continue. In

    order to ensure future growth in the market

    however, as well as to maintain Israel’s unique

    status as an investment phenomenon,

    Israel must leverage its strength in the

    technology sector while maintaining a stable

    regulatory environment for foreign investors

    with attractive incentives for multinational

    companies in a competitive global landscape.

    AUTHORS:

    Hanan Haviv

    Head of Hi-Tech | Herzog Fox & Neeman (HFN)

    Hanan Haviv heads the Hi-Tech Department

    at Herzog Fox & Neeman. Hanan joined

    HFN after spending six years in a leading

    U.S. law firm. As part of his M&A practice,

    Hanan has represented some of the world’s

    leading technology companies in their

    Israeli acquisitions. Hanan’s practice focuses

    on corporate and securities law, with an

    emphasis on M&A transactions, and the

    representation of technology and life science

    companies, ranging from start-ups to

    established companies and venture capital

    funds.

    Yuval Meidar

    Hi-Tech Partner | Herzog Fox & Neeman (HFN)

    Yuval Meidar is a partner in the Hi-Tech

    Department of Herzog Fox & Neeman. Yuval

    has expertise in the areas of business and

    commercial law, mergers and acquisitions,

    venture capital and corporate finance. He

    focuses his practice on the representation

    of entrepreneurs, venture capital firms, start-

    ups and mature companies in the hi-tech

    industry.

    Dana Zur-Neumann

    Hi-Tech Partner | Herzog Fox & Neeman (HFN)

    Dana Zur-Neumann is a partner in the Hi-Tech

    Department of Herzog Fox & Neeman and

    heads the firm’s Silicon Valley Representative

    Office. Dana’s expertise is in the areas of

    business and commercial law and she is

    responsible for strengthening HFN’s presence

    in the U.S.

    The American Lawyer | October 2016 119SS

    hfn.co.il

    SPECIAL SPONSORED SECTION

    “Israel attracts more venture

    capital relative to the size of

    its economy than any other

    country in the world.”


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