7 / 94
/7/
Some of the world’s largest private equity funds are looking
closely at Israel for opportunities. As a general rule, these funds
are looking for more mature companies, with proven revenue
history and especially with export sales. There are numerous
such opportunities in Israel of companies still controlled by the
founding shareholders or by the second generation, or owned
by Kibbutzim.
A major “driver” for M&A activity in traditional areas of the economy is a recent law
introduced in order to promote competition in the over-concentrated Israeli economy.
At the end of an initial transition period, it will no longer be permitted for a single
investment group to own both a substantial financial enterprise and a substantial non-
financial enterprise. As a result, a number of major financial enterprises (banks and
insurance companies) and industrial concerns will inevitably be sold off in the coming
years. In addition, a number of major conglomerates in Israel have borrowed too
heavily, and have been forced to sell offmajor assets in order to finance indebtedness.
Israel’s new Finance Minister, Moshe Kahlon, faces three major economic challenges.
The first of these is to introduce competition into Israel’s banking sector. The
banking sector is totally dominated by Israel’s two largest banks, Bank Leumi and
Bank Hapoalim. The new Minister has entered office vowing to open up Israel’s highly
concentrated credit market to competition. The first move appears to be a demand
that Israel’s major banks dispose of their credit card operations.
The second challenge is the ongoing saga of Israel’s offshore gas monopoly. The two
major offshore gas discoveries, the Tamar and Leviathan fields, are both owned by the
same consortium (Noble Energy, the Delek Group and the Ratio Group). The lack of
decisiveness in dealing with the resulting concentration of the gas market, which will
be a vital economic asset for Israel in the coming decades both domestically and in
terms of export, has been embarrassing for the Israeli regulators and the Government.
The third issue facing theMinister of Finance is todeal with thecritical housingsituation
in Israel, especially for first-time buyers and lower income groups. Any solution to this
problem will involve simplifying Israel’s planning regulations, and the release by the
Government of at least a portion of the large reserves of real estate held by the State.
Israel will continue to be a centre for technological innovation, and despite the
geopolitical environment, Israel will continue to offer attractive investment
opportunities. As soon as the uncertainties surrounding the commercial exploitation
of the major offshore gas discoveries are resolved (issues including the right to export
gas, the level royalties to be paid to the State, and the need for competition and
competitive pricing in the natural gas sector), the result will be a dramatic boost for
the Israeli economy. There are many reasons for optimism for doing business in Israel.