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S din-noon sraeli companies doing business abroad have al- ways been constrained by their lack of capital and the stringent foreign current restrictions placed on them by the Bank of Israel. Yet as the world's economy becomes more global and with Europe 1992 on the horizon, if they are to survive in the new game, Israeli firms must become part of this global industrial village. A new firm on the financial scene in Tel Aviv believes it has the formula to help Israeli firms do just that. Tmura T.N. Ltd. is one of Israel's few firms specializing in corporate finance and financial engineering for ex- port, trade and joint venture needs of Israeli industry. With financing from Israel General Bank, the four founders of the firm include Yoram Ziv, former president of Israel Chemicals, Yishai Erel, who previously headed the international corporate finance department at Israel Chemicals, Boaz Misholi, one of the founders of Efrat Future Technologies, and well-known business lawyer Amnon Portugali. Yishai Erel believes that more than 100 Israeli firms have the critical mass to play in the big leagues of interna- tional finance and enhance their posture internationally by making a smart cross- border acquisition. He points to Herzilia-based Oshap Thchnologies, which specializes in factory automa- tion and whose shares are traded publicly in New York, as a good example of how a properly structured Israeli firm should look. From day one the company acquired Technomax in Belgium which gave them critical mass in terms of revenue, and enhanc- ed their ability to raise future funds abroad. Investors could back the Belgium company, rather than have to deal with the political risk factor of in- vesting in Israel. Since Israel's banking system is very asset-based, rather than cash-flow based, banks will lend money to any company with assets, but not necessarily to those with healthy cash flows. This leads many Israeli firms with a solid future growth and ex- pansion strategy to believe they are not in a position to finance a foreign acquisition to enhance their interna- tional marketing position. "They wrongly assume that these types of cross-border ac- quisitions are out of reach as they believe they will have to finance the full cost of the purchase price when in fact the deal can be done with as little as 25 percent," says Erel. "The rest can be ac- quired via international banks' Mergers and Acquisi- tions departments. Unlike Israeli banks, assets and cash flow of the acquired entity has value to these investment firms." Tmura will first identify a possible takeover target, ap- proach M&A departments in large international banks, and then fit these two parameters to the needs and growth strategy of the Israeli firm. Then it will price and evaluate the foreign firm before recommending it to the Israeli client. There is also the problem for Israeli firms of a sur- charge of 7.5 percent on funds raised abroad if brought back to Israel and then later used to acquire a foreign firm. If the funds are raised abroad and kept there, no surcharge is levied. Another example is if a company raises money via a loan from abroad. It must pay 7.5 percent as a surcharge to the Bank of Israel which refunds the money when the loan is repaid. In the mean- time the firm loses a portion of its operating capital. "The Bank of Israel needs to enter the 1990s," says Erel. "Israel's tax system is too slow to keep up the pace of change in developments on the international business scene. 1b establish joint ven- tures abroad, firms need more flexibility to transfer their capital and funds freely, across as many borders as they like. How will Israeli companies be able to compete in the future with firms from countries which have more liberal financial restric- tions?" Erel also contends that the world of Mergers and Acquisi- tions is a two-way street. If more Israeli companies played the game, when the Israeli government decides to sell the companies it owns it will be easier to enlist these same banks because they will realize the political risk fac- tor associated with doing business with Israel is not a potential barrier.