from the June 2007 issue

Merger and acquisitions at high pitch

Mergers and acquisitions activity involving Israeli companies that were either acquired or merged totaled $10.58 billion in 76 deals in 2006, the Israel Venture Capital research center said. Notable technologies that were wholly or mainly originated in Israel include VoIP, Disk-On-Key, instant messaging ((ICQ), Intel's Centrino and multicore concepts, to name just a few.

Israel's Association of Electronics and Software Industries has recently said that the local electronics and software industries output reached $18.7 billion in 2006, out of which $16 billion was exported. This is some 13 percent rise compared to the year before, in which the output totaled $16.6 billion, out of which $14.2 billion was exported. The association claimed that Israel has one of the world's highest rates of engineers and scientists 140 per 10,000 in the population, compared to about 80 in the US and Japan, 60 in Germany, and around 40 in the UK.

During 2006, the Israeli government approved 592 research projects of 371 companies with a combined budget of $517 million, of which the government covered $216 million, an increase of 22 percent over 2005. Israel's expenditure on civilian R&D reached $6.3 billion in 2005, 4.7 percent of the country's GDP. According to IVC, 67 venture capital management companies operate in Israel, managing a total of 140 VC funds.

According to IVC's 2007 Yearbook, the total number of portfolio companies - 590 - represents a 20 percent increase in VC-backed high-tech companies from the 490 companies in 2005. In 2006, "angel" investment activity in Israel grew markedly. According to Zeev Holtzman, Chairman of IVC Research Center and Giza Venture Capital, 2007 and 2008 will be critical years for the future of Israeli high-tech.

"Competition from Asia China, India and South Korea in particular is fast increasing. As investor attention and capital moves towards Asia, Israeli high-tech will have to prove its advantages and its ability to develop innovative technologies in order to continue to attract investors. "VC funds will have to do their part as well," says Holtzman, "Israeli VC funds must adapt and find new approaches to address shifting market requirements, particularly in the Internet, new media and digital consumer sectors." A new survey conducted by Deloitte Brightman Almagor during March and April 2007 strengthens Holzman's thesis. The VC Indicator Survey reveals that 30 percent of the venture capitalists respondents fear that foreign venture capital funds will divert investment away from Israel into Asian countries like China and India, and as a result of that a great deal of investment in Israel would be lost. Nevertheless, 40 percent of the respondents predict that only a small amount of investment money would be lost to Asia. The remaining 30 percent think that Asian investments are not likely to affect Israel.

Reprinted from the Israel High-Tech & Investment Report June 2007

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