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Israeli High Tech: Ripe For The Picking (Int'l Edition)


International -- Finance: Takeovers

Israeli High Tech: Ripe for the Picking (int'l edition)

Israel's hot high-tech outfits are being sold to U.S. companies

The business page of Israel's national daily, Ma'ariv, declares "Silicon Valley Wants You." Indeed, a wave of deals is sweeping the Israeli high-tech industry. In March alone, U.S. companies shelled out nearly $1.2 billion for Israeli software companies--compared with $1.5 billion for all of 1998. Predicts Shlomo Kalish, CEO of investment bank Jerusalem Global: "A large percentage of our high-tech companies will be bought out in the coming years."

The surge in high-tech sell-offs is creating a new class of local millionaires. Yet it's also sparking debate. Small and medium-sized Israeli companies are pondering how to survive in an era of rapid consolidation, especially in the software, communications, and computer industries. Many political leaders fear that Israel will turn into a research and development center for foreign companies, while production and jobs will move elsewhere. "It's a failure for the Israeli economy that companies with huge potential and proven track records lose their independence," says Orna Berry, chief scientist of the Trade & Industry Ministry, which invests $400 million in high-tech companies a year.

But those worries aren't enough to stop companies from joining the mergers and acquisitions wave. On Mar. 8, Houston-based software house BMC Software Inc. bought New Dimension Software Inc., a Tel Aviv maker of systems management software, for $700 million. It was the largest price ever paid for an Israeli tech company. "Israel can hardly buck the trend of consolidation sweeping the industry," says New Dimension CEO Dan Barnea, 54.

Only three days later, SunGard Data Systems Inc. concluded a $210 million stock swap with a Herzliya software company, Oshap Technologies Ltd. SunGard wanted to get its hands on Oshap's financial software subsidiaries, which are planning to go public in the U.S. later this year. Lucent Technologies Inc. followed up on Mar. 29 by paying $260 million for Tel Aviv's Libit Signal Processing. Meanwhile, Cisco Systems, Sun Microsystems, and IBM are hunting Israeli startups in fields such as Internet security and telecom.

Fueled by the buyout rage, shares of potential takeover targets have soared recently. The shares of Fundtech, a developer of financial software, have jumped by 59% since March 9. Shares in Orckit Communications Ltd., a developer of high-speed digital telecommunications solutions, also increased 17.5% in the first three weeks of March.

But a few companies have bucked the trend by picking up their own acquisitions overseas. On Mar. 3, AMDOCS Ltd., Israel's largest software house and a world leader in telecom billing, paid $400 million for Canada's Architel Systems Corp. In December, Gilat Satellite Networks Ltd. bought GE Spacenet for $200 million.TEAMING UP. In this swirl of deals, many enriched entrepreneurs are pouring the proceeds into new ventures. "The money flowing to Israel from the sales creates hundreds if not thousands of new high-tech startups," says Israel Mazin, CEO of Memco Software, a specialist in Internet security that was purchased last August by Platinum Technology Inc., a designer of management software based in Oakbrook Terrace, Ill. that itself was recently purchased by Computer Associates International Inc.

The 39-year-old computer whiz is typical. With his share of the $250 million in proceeds, he is now teaming up with Tel Aviv's Discount Investment Corp. to set up a new fund to back high-tech startups. One day, these companies too may become part of a more powerful global powerhouse. But in the meantime, Mazin is counting on them to create new wealth for himself--and Israel.By Neal Sandler in JerusalemReturn to top

TABLE

A Surge in High-Tech Takeovers

ISRAELI COMPANY PRODUCT OR SERVICE

NEW DIMENSION Systems management

MIRABILIS Internet messaging

LIBIT SIGNAL Internet access

MEMCO SOFTWARE Internet security

OSHAP Software holding company

TELEDATA Telecom equipment

AMOUNT

ISRAELI COMPANY U.S. PURCHASER PAID MILLIONS

NEW DIMENSION BMC $700

MIRABILIS America Online 407

LIBIT SIGNAL Lucent 260

MEMCO SOFTWARE Platinum 250

OSHAP SunGard 210

TELEDATA ADC 200

DATA: BUSINESS WEEK

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