Foreign Investment in Israel Plummets in Q1 2023 by 60% - High-Tech Industry Hit Hard

In the first quarter of 2023, foreign investment transactions in Israel amounted to approximately $2.6 billion, marking a significant decrease of about 60% when compared to the average quarterly figures for 2020 and 2022, according to an annual summary published by the Chief Economist Division at the Ministry of Finance, led by Dr. Shmuel Abramson.

This data also reveals a substantial drop in the average value of "exit" deals in the same quarter, plummeting by approximately 80% from around $307 million per deal in both 2020 and 2022 to a mere $56 million per deal in Q1 2023. The Chief Economist's Division attributes part of this decline to the decreased value of technology companies in the United States, and they suggest that more companies have been raising capital at lower valuations than in previous funding rounds.

Moreover, the report highlights a reduction of over 50% in the total value of "greenfield" transactions, which involve establishing new business operations in the country rather than acquiring existing companies. While the number of these transactions remains relatively constant, their total value in the first quarter of 2023 was approximately $180 million, compared to data from 2020 and 2022. The Ministry of Finance attributes this sharp decrease in total transactions to the uncertainty prevailing both locally and globally, which has led to a decrease in foreign investment volume.

In the context of investments in the high-tech industry, the report notes that the rate of new public offerings (IPOs) has seen a dramatic decrease of nearly 90% over the past year. The Treasury attributes this decline to rising interest rates worldwide, affecting not only the high-tech industry in the United States but also its counterpart in Israel, which heavily relies on foreign investments, particularly from the USA.

It's worth noting that the Treasury's data is based on actual transactions, making it more reliable than the data presented by the Central Bureau of Statistics (CBS), which reported a lower decrease of approximately 34% in total foreign direct investments in Israel for the first quarter of 2023 compared to the 2020-2021 quarterly average.

However, these preliminary data for the current year contrast significantly with the positive trend observed in 2022. Israel saw foreign investment transactions totaling $29.321 billion last year, a decrease compared to 2021 but an increase compared to 2020. Approximately 72% of these investments came from the USA, with Great Britain contributing 8%, and the remaining amount originating from other countries, including Germany, Switzerland, France, Japan, and Canada.

The Ministry of Finance attributes these impressive performances in 2022 to several factors, including the Russia-Ukraine war in February 2022, which disrupted the global supply chain, and earlier challenges posed by the COVID-19 pandemic. These events contributed to a significant spike in global inflation from 4.7% in 2021 to 8.8% in 2022.

The report also notes that the slowdown in transaction execution in 2022 affected all sectors. In particular, the healthcare sector saw a 47% decrease in mergers and acquisitions transactions, following a surge in 2020-2021 due to the pandemic. Meanwhile, the technology sector experienced a 32% decline. Surprisingly, the basic metals sector was the only one that continued to register growth in 2022, with transactions nearly doubling in value compared to the previous year.

In summary, the field of mergers and acquisitions remained relatively concentrated in a handful of countries in 2022, with just five economies - the UK, US, Australia, Netherlands, and Sweden - accounting for almost half of all M&A deals. The top three investing economies - the US, Australia, and Canada - were responsible for 46% of all deal volume in 2022.