IFLR 1000
The Guide to the World's Leading Financial Law Firms

The Israeli legal market has traditionally been dominated by local firms as you can see from our tables. However there is some change afoot, international firms are beginning to eye the jurisdiction with interest with US firm Greenberg Traurig the first to take the plunge with the announcement of its office launch in Tel Aviv in late 2011, which is set to focus primarily on intellectual property and life sciences....

The Israeli legal market has traditionally been dominated by local firms as you can see from our tables. However there is some change afoot, international firms are beginning to eye the jurisdiction with interest with US firm Greenberg Traurig the first to take the plunge with the announcement of its office launch in Tel Aviv in late 2011, which is set to focus primarily on intellectual property and life sciences. UK firm Berwin Leighton Paisner has also launched a representative office, while DLA Piper, Linklaters and Zelchner Ellman & Krause have all since announced their interest in moving into the market, whether it be through an office launch, merger or just the acquisition of a local law license.

This has been driven by a few factors, the most obvious being the changes to the Bar Association Act, which allows foreign lawyers to provide advice on international law and the law of their home jurisdiction as well as a provision allowing them to merge with local law offices.

There is plenty of debate however about how much the rule changes will affect the market. The Israeli domestic firms already handle both local and foreign law, they have established client bases and often strong links to international firms. In addition the competition at the top end of the market is incredibly fierce, with the jurisdiction possessing more lawyers per head of population then almost anywhere else in the world – a statistic likely to deflate the old argument about international firms increasing competition and bringing greater efficiency.

What seems to be a more likely outcome is moves in the midmarket, with mergers between smaller firms and boutiques. Even this is not straightforward, as even with liberalisation there are still huge bureaucratic hurdles to jump before any commitment can be signed, ones which even effect the structure of law firms themselves.

CONTEXT AND TRENDS
Banking in Israel is traditionally more conservative and therefore most institutions have engaged in safer lending practices than European banks. "In Europe, 70 to 80% of lending is normal, Israel is still conservative, banks lending 50% it's still very high," says one partner....

CONTEXT AND TRENDS

Banking in Israel is traditionally more conservative and therefore most institutions have engaged in safer lending practices than European banks. "In Europe, 70 to 80% of lending is normal, Israel is still conservative, banks lending 50% it's still very high," says one partner.

However the sector has not escaped unscathed and is under stress: "Israeli's biggest borrowing groups apply for massive borrowing, they can't repay," one partner points out and another agrees. "Generally Israeli banks are quite stable and conservative, however, we've seen more events of default and settlements." Linked to this firms have witnessed the rise in banking litigation, generally involving local banks.

As in Europe, lack of credit is becoming common in Israel and banks have now become much more selective in their lending, this is especially the case for projects that don't generate sufficient returns such as real estate. "The market is very tough, small companies are keeping banks alert," says another partner. Increasingly institutions are favouring acquisition and project finance. "Banks are willing to lend, but they are more interested in M&A," says another partner.

In addition, Israel's Central Bank is very conservative and wants to introduce a regulation to make sure banks don't overlend. "Banks now try not to concentrate too much capital on one customer or borrower; banks are now very picky," says one partner.

Where there is movement and activity though is from international banks who are increasingly keen to get involved on projects. "Foreign banks such as Credit Suisse, Barclays, Bank of America and Citibank are more interested in larger deals, not simple straight forward loans," says a partner. In addition other entities such as insurance companies and pension funds are also eyeing up the market. "They don't just do insurance but also transactions, but the market share is still largely dominated by Israeli banks," says a lawyer.

The next 12 months will be a roller coaster. "There will be more cases against banks, and they will try to extend the liability of banks," predicts one banking lawyer. "Israeli banks will be cautious. They will not be lending much money. Large financing will be coming from outside," says another.

When it comes to project finance, the country is inundated with activity. Stand alone projects such as training bases and police academies, transportation, desalination, energy projects and a raft of activities related to the newly discovered Tamar Natural Gas field are all finding themselves on the deal lists of the major firms.

However while projects may be plentiful, liquidity as mentioned above, is not and the greatest challenge is trying to obtain financing from banks. "Financing is more and more difficult because of two factors: legislation and banks being cautious," says a partner.

CONTEXT AND TRENDS
If banking in Israel bears no resemblance to European banking, then capital markets do. "Capital markets have been less exciting than banking, not much fundraising in the market," says a partner....

CONTEXT AND TRENDS

If banking in Israel bears no resemblance to European banking, then capital markets do. "Capital markets have been less exciting than banking, not much fundraising in the market," says a partner. With a sharp drop in share prices, firms notice there are not many IPOs. "ECM (equity capital markets) is low and IPOs are incredibly low since 2008," continues the partner. "There have also been cases of delisting," says another.

Nevertheless, firms are kept busy working on a few stand out public listings such as Imperva on the NYSE, Paz Oil Company on its public offering on the TASE (Tel Aviv Stock Exchange) and Caesarstone on the Nasdaq.

Contrary to the equity market, debt capital markets have been "very strong, with major bond offerings," saw a partner. Some firms have been focusing on pure debt work, with major banks as underwriters such as UBS, Barclays Capital and Citigroup on the $1.5 billion global notes offering by the State of Israel.

When it comes to M&A, the country is never out of work. Lawyers must be out of breath working with corporates as firms are extremely busy working on deals across all sectors.

Hi-tech acquisitions are still the most popular activity, with buyers usually from the US. Recent deals have involved the likes of Cisco, Apple, Facebook and Google. In the life sciences sector, one impressive deal could be Chem China's acquisition of a 60% interest in Makhteshim Agan. Financial sector deals are just as popular, with Shlomo Eliyahu Group's acquisition of control in Midgal Insurance a key example.

With Israel's biggest conglomerates controlling most of the country's assets, there has been talk from the government about setting up a new law that does not allow businesses to have more than 20% of the industrial holdings in a sector. "The Israeli government is adopting a 'concentration committee' set up to investigate how competitive the Israeli market is," explains a partner. This regulation is still an ongoing debate. "It aims to encourage competition instead of allowing big giants to acquire all the businesses," says another partner. Others have a different opinion. "It will dry out M&A in Israel," worries a partner. "The new law won't affect us too much in high-tech, mainly in retail or other industries," says another.

Regardless of whether the new regulation is passed, all partners remain confident that the M&A sector will continue to thrive. "M&A will remain strong," concludes a partner.

MAJOR LATERAL HIRES

Aaron Lampert
From: Naschitz Brandes
To: Goldfarb Seligman & Co