Expert view: Watch and learn as Apax buys Israeli

Despite the current lack of activity in the private equity market, it probably did not come as a great surprise to many to learn last week that Apax Partners, one of the leading players in the sector, would be booking a handsome profit after agreeing to sell its stake in a telecoms provider. After all, Apax has been making canny investments for more than 30 years.

But one aspect of the story caught the eye: the particular company was not British, American, Scandinavian or Indian, but Israeli — Bezeq.

When Apax joined forces in 2005 with media businessman Haim Saban and life sciences entrepreneur Mori Arkin to acquire a controlling stake in Bezeq, there were quite a few UK analysts who questioned the logic of the deal. The economy had just come out of recession, the country was gearing up for a period of instability as Arik Sharon began implementing the disengagement from Gaza, and the old adage that to make a small fortune in the Jewish state one needed to start with a large one, was still the view of many.

Sadly, Apax represents the exception, rather than the rule, as far as investment in Israel by the UK business community is concerned. This is a serious error of judgment. Only a couple of weeks ago, Siemens spent more than US$400m acquiring thermal power company Solel Solar Systems and American companies are always looking out for Israeli companies to buy — Microsoft, Cisco, Kodak and Yahoo have all made acquisitions there in the past few years. And then, of course, there is Warren Buffett’s Berkshire Hathaway, which splashed out US$4bn in 2006 to take an 80 per cent stake in the metal tooling manufacturer Iscar, so marking its first investment outside the US.

Whilst geopolitical instability is often given as a reason for not investing in Israel, local businesses continued to operate during both the war with Hizbollah in 2006 and the Gaza conflict earlier this year. Although Iran’s nuclear programme is a serious concern, instability in Pakistan, which already has nuclear weapons, has not prevented huge investment in India. And one doesn’t have to go to Israel to run a slide rule over potential opportunities. Last month, 16 Israeli clean-tech firms presented their businesses in London.

As the Bezeq deal has shown, the lack of UK investment in Israel just doesn’t make business sense. And Apax is not finished regarding Israel. It still has its majority holding (with Mivtach Shamir) in the food company, Tnuva. Other investors should learn from its example.

Jonathan Morris is a partner at international law firm Berwin Leighton Paisner LLP

Last updated: 10:04am, November 5 2009