Over the course of a year characterised by the financial consequences of Covid-19, Israel’s hi-tech sector stood out as a reliable source of economic growth.
Despite lower levels of investment in start-ups compared to previous years, major players in the market still made the headlines in 2020, representing a flight to quality. The largest M&A transaction in the TMT sector was Checkmarx’s $1.2bn sale to US private equity firm Hellman & Friedman and TPG Capital, followed by Moovit’s $900m sale to Intel. In the field of capital markets, JFrog raised $509m through its IPO on Nasdaq in September 2020, and Lemonade raised approximately $320m in July 2020 on Nasdaq, underscoring the historically robust relationship between Israeli corporates and US investors.
Besides hi-tech, Israel’s energy sector generated significant investment over the last twelve months. The deal of the year by a wide margin was Chevron’s $5bn acquisition of Noble Energy (the operator of two gas fields in Israel), followed by Shikun & Binui and Edeltech’s relatively modest $1.24bn acquisition of Ramat Hovav Power Plant, which is particularly significant since it was sold by the IEC as part of its mandated divestment of its power plants to enable greater market competition.
Another major boon to the economy came in the form of the Abraham Accords, normalising relations between the UAE and Israel. Almost immediately after signing the agreement, both parties agreed on abolishing double taxation and opening up the airspace for direct commercial flights to run between the two countries. In addition, a $3bn regional development fund (the Abraham Fund) was quickly established under the agreement to support private sector-led investment in initiatives designed to 'promote regional economic cooperation and prosperity in the Middle East and beyond'. While the development fund isn’t set aside for any particular sector, it will probably be used in part to finance infrastructure and energy projects, given that the UAE and Israel both see renewable energy as a priority for the future.
Of course, Covid-19 did have a clear impact on litigation in Israel. Firstly, there was a significant rise in class actions in 2020, caused in part by an array of issues unique to the pandemic, and in part by Israel’s favourable climate for claimants in competition disputes. Most of these disputes involved alleged infringement of the Consumer Protection Law, however there was also a rise in class actions brought against international companies with operations in Israel. Secondly, bankruptcy cases also soared as a result of lockdown measures, despite the government’s financial aid programme for struggling businesses, including a special loan facility made available to SMEs. As a result of corporate bankruptcies and restructuring processes, Israel’s unemployment rate increased from 3.6% in February 2020 to 4.8% in November 2020.
Overall, though, Israel is well-positioned to weather the storm, given its world leading reputation in hi-tech coupled with its ideal climate for renewable energy initiatives, its significant investment in the transport sector (perhaps best illustrated by the Tel Aviv metro line project) and its excellent connections with multinationals and investors in key markets such as the US and China.