Accquisitions In Israel
Spur High-Tech Debate

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'TN

ith the announcement
in March of the largest-
ever foreign acquisition
of an Israeli firm,
Israel's high-tech sector is once again
basking in the international spotlight.
But, although there is a consensus
in Israel that the increasing number
of mergers and acquisitions is a vote
of confidence in Israel's technological
prowess, not everyone is celebrating.
A debate over the
future of Israel's high-
tech sector is heating
up, and some high-tech
players are worried that
Israeli entrepreneurs
are selling out too fast.
BMC Software of
Houston, a company
with $958 million in
annual revenues last
year, agreed to acquire
New Dimensions Software of Tel Aviv
for nearly $700 million in cash.
The deal came less than a year
after America Online paid $287 mil-
lion in cash to purchase Mirabilis, a
small Israeli company that develops
technology for the Internet.
And just two days after the BMC
Software announcement, SunGard
Data Systems of Pennsylvania said it
would acquire Oshap, another soft-
ware group, in a stock transaction val-
ued at about $210 million.
According to Giza Group, a Tel
Aviv investment bank, the value of
mergers and acquisitions between
Israeli and foreign technology groups
climbed from $1.5 billion in 1997 to
a record $2.13 billion in 1998.
Critics say that Israeli companies,
which are often weak at marketing and
management, are not willing to take
risks to try and go global themselves.
They are too easily seduced, say the
critics, by the prospect of quick cash,
after which they are often swallowed up
and become local research and develop-
ment centers for overseas giants.
Even Dan Barnea, New Dimension's
chief executive, was not all smiles after
cutting the BMC deal. His dream of
nurturing New Dimensions into a

global company was cut short when the
firm's main shareholders, who had been
at loggerheads over internal issues,
accepted BMC's offer.
"If not for the shareholder's dis-
pute, I would have dared to go fur-
ther," Barnea said. "I really hoped we
could grow and prove that an Israeli
company could become a big player
on international markets."
According to Barnea, the enor-
mous financial burden required to
build sales and distribution channels
discourages many Israeli entrepre-
neurs from trying to expand interna-
tionally on their own.
"Being in Tel Aviv
far from key markets
— just makes it hard-
er," he said. "When
people face these diffi-
culties, and have an
alternative like cooper-
ating with foreign
groups that already
have these channels in
place, they go for it."
After the BMC-New Dimensions
deal, some critics even urged the gov-
ernment to intervene to stop future
deals.
But Natan Sharansky, Israel's min-
ister of industry and trade, said Israel
is committed to a free market.
"We have nothing to fear,"
Sharansky told Max Watson, BMC's
chief executive, who was in Israel to
seal the deal. The investment, said
Sharansky, proves that Israel has
become one of the most interesting
research and development centers in
the world, and an attractive target for
foreign investment.
But this is precisely what is ringing
warning bells among some high-tech
analysts, who fear Israel's technology
sector may be destined to become one
big research and development sub-
sidiary of Silicon Valley, and will
never emerge as a viable, productive
sector to drive economic growth in
the 21st century.
"Israeli entrepreneurs have yet to
show the business leadership needed
to become global players," said
Charlie Ben Chabat, head of
research at Robertson Stephens
Evergreen, the investment bank's Tel
Aviv branch.

—

R&D only
and no
middle class?

_

