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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

Israel’s Evolving Relationship with the U.S./media/Files/Insights... · country except the U.S. and China. Israel attracts more venture capital relative to the size of its economy

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Page 1: Israel’s Evolving Relationship with the U.S./media/Files/Insights... · country except the U.S. and China. Israel attracts more venture capital relative to the size of its economy

112SS October 2016 | The American Lawyer

� � � � � � � � � � � � � � � � � � � � � � � � � �� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� � � � � � � � � � � � � � � � � � � � � � � � � �� � � � � � � � � � � � � � � � � � � � � � � � � � � �� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� � � � � � � � � � � � � � � � � � � � � ! " # � � � � � � � � � � � � � � � � � �� � � � � � � � � � � � � $ � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� � � � � � � % � � � � � � � � � � � � � � � � � � � � � � $ � � � � � � & � � �� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� ' � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � % � � �( ) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� � $ � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� � � � � � � � � � � � % � � � � � � � � � � � � � * � ' � � � � � � + � � � � , � $ �- � � � � � � � � � � � � � � � � � � � . ) � � � � � � � � � � � � � � � # � � / � 0 � ' . 1 � � � � � � � � � � � � � � � $ � � � � � � � � � � � �� � � � � 2 � � ( � � � � � � � � � � � � � � � � � � � � � � � � $ � � � � � � �� � � � � � � � � � � � � � � � � � � � � � � � � � � � $ � � � � � � � � � � � � � � �$ � � � � � � � � � � � � � � � � � $ � � � � � � � � � � � � � � � � � � � � � �� � � � � � � $ � � � � � * � � � � � � � � � � � � � � � � � % � � � � � � � � � � � � �� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1 � � � � � �� � � � � � � � � � � � � � � � � � � � � � � � �� � � � � � � � � � � � � $ � � � � � � � � 3 � � � � � � � � � � � � � � � � � �

By Howard Stock

Israel’s Evolving Relationship with the U.S.

ISRAEL

SPECIAL SPONSORED SECTION

Page 2: Israel’s Evolving Relationship with the U.S./media/Files/Insights... · country except the U.S. and China. Israel attracts more venture capital relative to the size of its economy

The American Lawyer | October 2016 113SS

� � � � � � � � 4 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� � � � � � � � � * � � � � ! � � 2 � � � � � � � � � � � � � � � � � 1 � � � � � � /2 � � � � � � ) � � � � ( 5 � � � � � � � � � � � � � � � � � � $ � � � � � � �� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � $ � � � � � � � � � � � � � � � � � � � � $ � � � � � � �� � � � � � � � � � � � � � � � � *5 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� � � � � � � � � � � � � � � � � � � � � � � � � $ � � � � � � � � � � � � � � � � � �+ � � � � � , � � � � � � � � � � � � � � � � � 6 , ) - � � � � � ( 5 � � � � � � �� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �# � � � ! � � � � � � � � � � � � � � � � � � � � � � � ) � � � � � � $ � � � � � � � � $ �� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � *) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� � � � � ) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �( � � � � � � � � � � � � � � � � � � � � � � � � � $ � � � � � � � � � � �� � � � $ � � $ � � � � � � � � � � � � � � � � � � � � � * � � � � � � � � � � � � � �� � � � � � � � � � � � � � � � � � , � � � � � � � � � � � ( & � � � � � � � � �& � � 7 0 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� � � � � � � � � � � � � � � � � � � � � � � $ � � � � � � � � � � � � � � � � � � � � �� � � � � � � � � � � � � � � � � � � � � � � $ � � � � � � � � � � � � � � � � � � � � � � $ � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � $ � � � � � �� � � � � � � � � � � � � � � � � � * � � � � � � � � ( 5 � � � � � � � � � � �� � � � � � � � � � � � � � � � � � � $ � � � � � � � � � � � � � � � � � � � � � � � � �� ' � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � *PAYING IT FORWARD �� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � $ � � � � � � � � �� � � � � � � � � � � � � � � " � � � � � � � � 2 � � 1 � � � � � � 5 � � � � � � �. � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � $ � � $ � � � � � � �� � � � � � � � � � % � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� � � � � � � � � � � � � � � � � � � � � � ' � � � � � � � � � � � � � � % � � � � � � � � � � � � � � � � � � � � � � � � $ � � � � � � � � � � � � � � � � � �� � � � � * 5 � � � � � � � � � � � �� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� � � � � � � $ � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �

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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

SPECIAL SPONSORED SECTIONSPECIAL SPONSORED SECTION

Page 3: Israel’s Evolving Relationship with the U.S./media/Files/Insights... · country except the U.S. and China. Israel attracts more venture capital relative to the size of its economy

114SS October 2016 | The American Lawyer

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ISRAEL

GIL BRANDES

NASCHITZ BRANDES AMIR

JANET LEVY PAHIMA

HERZOG FOX & NEEMAN

“It was a great step in the right direction to allow foreign lawyers to register with the Israeli bar.”

—JEREMY LUSTMAN, DLA PIPER

SPECIAL SPONSORED SECTION

Page 4: Israel’s Evolving Relationship with the U.S./media/Files/Insights... · country except the U.S. and China. Israel attracts more venture capital relative to the size of its economy
Page 5: Israel’s Evolving Relationship with the U.S./media/Files/Insights... · country except the U.S. and China. Israel attracts more venture capital relative to the size of its economy

116SS October 2016 | The American Lawyer

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ISRAEL

JEREMY LUSTMAN

DLA PIPER

DONI TOLEDANO

ERDINAST, BEN NATHAN,

TOLEDANO & CO.

“Israeli !rms are more aware than ever before of the importance U.S. businesses attribute to market-ing and relationships enhancement over time.”

—GIL BRANDES, NASCHITZ BRANDES AMIR

SPECIAL SPONSORED SECTION

“Foreign companies intending to incorporate Israeli subsidiaries may now use constituting documents in English and foreign lenders may use debentures in English to register and perfect liens.”

—DONI TOLEDANO, ERDINAST, BEN NATHAN, TOLEDANO & CO.

Page 6: Israel’s Evolving Relationship with the U.S./media/Files/Insights... · country except the U.S. and China. Israel attracts more venture capital relative to the size of its economy

#TozziniFreire40anos

40 years of achievements

Looking ahead to the next 40 years

tozzinifreire.com.br

Page 7: Israel’s Evolving Relationship with the U.S./media/Files/Insights... · country except the U.S. and China. Israel attracts more venture capital relative to the size of its economy

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

Page 8: Israel’s Evolving Relationship with the U.S./media/Files/Insights... · country except the U.S. and China. Israel attracts more venture capital relative to the size of its economy

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.”