Matrix and Magic Announce Merger Deal - Creating $2.14 Billion IT Services Giant

In a significant move within the Israeli tech sector, software companies Matrix and Magic confirmed on Tuesday that they have signed a memorandum of understanding to begin negotiations for a merger. According to the deal, Matrix will acquire all of Magic’s shares in a reverse triangular merger transaction, with Magic becoming a private company owned by Matrix and eventually traded on the Tel Aviv Stock Exchange.

The transaction is a stock-for-stock deal, meaning that Magic shareholders will receive Matrix shares in exchange for their Magic shares. Upon completion of the merger, Magic’s shareholders will own 31% of the newly merged company on a fully diluted basis, while Matrix’s current shareholders will hold the remaining 69%.

The merger ratio, however, could lead to opposition from Magic shareholders, who, in a control sale transaction, might demand a higher premium. The current deal provides a 13% premium based on Magic’s value as of March 6, but following a recent 8% increase in Magic’s Nasdaq share price after the merger was disclosed, the premium stands at approximately 7%.

Creating a $2.14 Billion IT Services Powerhouse

The combined market value of the two companies post-merger will be approximately NIS 7.7 billion ($2.14 billion). The newly formed entity is projected to generate revenues of NIS 7.6 billion, with a gross profit of NIS 1.4 billion, operating profit of NIS 677 million, and a net profit of NIS 408 million. The merged company will employ 15,000 people and operate in 50 countries globally.

Matrix has also confirmed that it will continue its current dividend policy through the first half of 2025, signaling stability during the transition period.

Formula Group's Role and Stakeholder Transaction

Both Matrix and Magic are controlled by the Formula Group, which is owned by the Polish corporation Asko. This shared ownership structure makes the transaction a stakeholder deal, with both companies establishing independent committees of their boards to oversee the approval process. A shareholder vote is required for the merger to move forward.

Matrix CEO Moti Gutman, who was instrumental in driving the merger, emphasized the strategic advantages of the deal. The merger will position the combined entity as one of the leading publicly traded IT services companies globally, strengthening the companies' positions both domestically and internationally. Additionally, the deal is expected to create synergies in management, operations, and technology, facilitating smooth integration and development of new technologies. The all-stock nature of the transaction also eliminates the need for external financing.

Advisors and Legal Representation

Matrix was advised on the transaction by the international investment bank Jefferies, while Magic received counsel from Vali Bays and William Blair. The legal teams representing both companies included Lior Porat and Uri Heller of the Gornitzky firm for Magic, and Nir Dash and Reut Alkalai of the Herzog firm for Matrix.

With the merger negotiations now underway, the deal could reshape the landscape of the Israeli tech industry and elevate the merged entity to a global leader in IT services.