Historically, the strength in Israel’s private equity industry has largely stemmed from the country’s venture capital space. This is the result of the nation’s celebrated technology industry that has long been the destination of capital from many global venture capital firms. However, recently more private equity firms have been drawn to invest in Israel in more late-stage deals including buyouts.
Granted, there are still many more venture capital funds than buyout vehicles on offer in the region, but with a growing GDP and a vibrant economy, many larger buyout houses are testing the waters in what could be a lucrative space. Similar to many Middle Eastern and African countries, Israel has welcomed the recent burgeoning of a middle-class alongside general population growth. This development could mean investments into consumer-focused industries that could provide the more stable long-term returns that buyout fund managers favour.
Preqin’s Fund Manager Profiles online service shows how the industry is still largely venture capital-focused. In fact, 205 out of the 223 firms that invest in Israel as part of a wider geographic focus will consider investing capital in the venture capital stages of a company along with their broader private equity strategy. This is in contrast to only 36 firms that state they will consider a buyout of an Israel-based company.
The real growth in the Israel-focused buyout industry can be seen when examining data from Preqin’s Funds in Market online service. Currently, there are 15 venture capital funds in market collectively seeking to raise a total of $835mn to invest solely in Israel. However, the next largest strategy is buyout, with three such funds currently in market hoping to garner an aggregate $700mn, and all three of which will invest their capital directly in Israel. Compared to this time last year, this is a significant increase in the capital targeted, when only one buyout fund was in market to raise $120mn.
While many buyout firms have been making deals in Israel for a while, some are now cementing their longer-term commitment to the area by opening satellite offices in the country. Firms that have already done so include Apax Partners and Hamilton Lane, with buyout major Blackstone announcing its intentions to in the near future. Apax Partners is leading the way for buyout firms investing in Israel, having made five investments in the area already, along with targeting $300mn for its solely Israel-focused buyout fund, AMI Investment Platform.
The buyout industry in Israel may never reach the heights or reputation of the Israel venture capital market and arguably has some way to go in order to convince investors of its longevity and stability. However, the prospects of investing in later stage opportunities in Israel are certainly beginning to gain credibility with fund managers and LPs alike.