Foreign Direct Investment – Not Always Positive  

One of the most important activities contributing to the growth of Israel’s economy over the last 50 years has been foreign direct investment.   By now everyone has lost count of how many foreign companies have subsidiaries here or have simply invested in Israeli companies during this period.  The establishment of the then Ministry of Industry & Trade’s Center for Business Promotion in 1991 was a key driver in this economic growth and a good example of how a government can actually create beneficial programs.

But there is a by-product of foreign direct investment that dramatically affects our economy and is not always for the good.  That is, the acquisition of Israeli companies by foreign entities. To my knowledge no ministry of the Israeli government can actually produce a reliable list of which companies have been acquired by foreign firms, who the acquiring firm was, when it occurred, for how much and when the buyout occurred.

35 years ago, our firm had a consulting agreement with the Center for Business Promotion, at which point we were asked to track these acquisitions.  We began to do so, and I personally kept it up long after we were no longer servicing the Center. Today it is probably the only extant list of such data in Israel 95% accurate to the present.

While accumulating data is one part of the process, analyzing it is just as important, as it gives the government the ability to spot trends and raise concerns which might need action at by some ministry or other government agency.

Statistically, in 2021 there were 56 foreign acquisitions, followed by 29 in 2022, 31 in 2023, 38 in 2024, and 35 so far this year. If 2025 continues at this pace, we could expect to see 52 acquisitions by the end of this year, rivaling the record set in 2021.

Specifically, of the 34 acquisitions this year, 25 were by US-based firms, two by Chinese companies, and one each by companies based in Austria, Germany, India, Japan, Netherlands, New Zealand and the UK. While not every single one of these reported how much was paid for each company, those that did report added up to an aggregate total of $70 billion.

The good news is that there are now a lot of new millionaires in Israel and even some new billionaires.   Good for them and congratulations on having built a business that created that level of value.   But the not so good news, and something that Israel needs to start worrying about, is the fact that, once again, businesses are being sold off to foreign companies rather than continuing to grow as Israeli firms with the attendant job creation, personal income and tax generation that would occur as a result of that growth.

While initially many of the acquiring companies promise to keep the R&D work going in Israel, history has shown that in all too many cases, eventually the operation here shrinks to a handful of people or is phased out completely.

The other concern should be why the spurt in numbers this year?  Are more companies here looking to exit given the war that continues without a clear picture of when or if it will end?  Are foreign companies taking advantage of the situation here and finding that they can acquire companies today for less money than they would have paid before October 7^th? Does this presage a significant potential exit of our best and brightest tech talent?

It is difficult, if not impossible, to come up with empirically accurate answers to these questions.   Nevertheless, at a minimum, there should be some government agency here doing the analysis, querying foreign companies as to their motives, and doing whatever can be done to husband our tech resources for the continued positive growth of our economy.  In spite of our success, we are too small a nation to be positioned as the feeder for the growth of foreign entities looking to profit from our current political situation.  Someone in authority needs to be “watching the store.”