Israel's Finance Minister Promises New Rules to Ease Tech Mergers

Despite the obstacles, the number of mergers and acquisitions between Israeli companies has been growing.

High-tech workers in Israel.
Tomer Appelbaum

Just days after Israel amended its tax rules to impose corporate income and value-added tax on multinational Internet companies, Finance Minister Moshe Kahlon signaled he plans to take steps that should win the tech industry’s favor by easing regulations that delay mergers and acquisition deals.

“The treasury and the Tax Authority are working to ease conditions for high-tech. In the next few weeks we will come out with a series of measures – a fast track for mergers and acquisitions,” Kahlon said in a prerecorded video address to the Hitalk conference in Tel Aviv on Tuesday. “The Finance Ministry sees high-tech as the economy’s growth engine.”

Kahlon did not say exactly what the measures will be but promised they would be unveiled within a few weeks. TheMarker has learned that they will involve amending rules governing the approval of mergers and acquisitions and taxes on intellectual property.

Mergers and acquisitions now require approval from the Israel Tax Authority when the transactions are being conducted in stock – as most are in high-tech – rather than in cash, and the approval process can be quite long. Mergers of this sort are critical for small companies seeking to grow into large ones, a process the government is trying to encourage.

Despite the obstacles, the number of mergers and acquisitions between two Israeli companies has been growing, topped by the 2015 merger between IronSource, a mobile app distribution company, and Supersonic, a mobile ad company specializing in in-game and in-app ads to create what was reportedly a company worth $1.3 billion.

In related news, Magic Leap – a high-flying U.S. company developing augmented-reality eyeglasses – is buying the Herzliya startup NorthBit to provide it with security solutions. Most of NorthBit’s 20-person team will remain with Magic Leap after the deal is completed.

No price for the acquisition was reported, but sources said it was in the several millions of dollars. NorthBit was formed in 2012 by Gil Dabah, its CEO, and Ariel Shiftan, its technology chief, and to date had raised no capital. It gained attention recently for exposing security lapses in Google’s Android operating system.

Florida-based Magic Leap, which was founded five years ago by CEO Rony Abovitz and Brian Schowengerdt, raised an estimated $793.5 million in February from an investor group led by China’s Alibaba joined by Warner Brothers and financial institutions including Fidelity and J.P, Morgan. The round valued Magic Leap at $4.57 billion.

Magic Leap CEO and co-founder Rony Abovitz. The photograph shows a round-faced, gray-bearded man with curly gray hair who smiles into the camera while giving a salute.
Mike Blake