Aaron Katsman
www.IsraelNewsletter.com

Just in time for the State of Israel’s 60 birthday, IBM (IBM) continues to only buy blue and white (the colors of the Israeli flag). It looks like IBM  is set to acquire Israeli storage solutions developer Diligent Technologies Corp. for $200 million. This will be the third purchase of an Israeli start-up by IBM since the beginning of ‘08.

Back in Jan. IBM purchase storage technology company XIV for around $300-350 million, and last week it bought data recovery company FilesX Ltd. for about $70-90 million. That makes about $600 million in purchases, not bad. It reminds me of the Richard Pryor classic, “Brewster’s Millions” where, as per the Wikipedia definition “Brewster is an aging minor league baseball pitcher, with the (fictional) Hackensack Bulls. He suddenly finds that he is an inheritor of an eccentric millionaire who wanted to discourage him from spending excessively. To do so, Brewster must spend the entirety of $30 million within a strict time limit in order to inherit $300 million. There are some conditions attached: the money cannot simply be destroyed nor can he buy expensive goods and destroy them.”

As we have posted previously, IBM has stated that they plan to spend freely to buy technology companies. To date they have stuck to Israeli storage companies. IOI has speculated that a move into the security space  may make sense for IBM, and if so, Checkpoint (CHKP) may become a target.  That speculation has been met with a “when pigs fly” type of response from certain investors.  All  can say is who would have thought that we would live to see IBM as a real life Brewster!

Disclosure: Author’s fund has a position in CHKP, fund has no position in any other stock mentioned as of 4/17/08.

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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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Is it me or does it seem that Israeli startups are hotter than a stolen tamale? IBM (IBM) announces it’s buying ANOTHER Israeli startup. This time its FilesX, a company providing data recovery and back-up solutions for business continuity. This is on top of Big Blue’s purchase of XIV earlier this year. It does seem on the back of IBM’s activity and AOL’s (TWX) that Israel M&A is heating up — at the startup level.

Eze Vidra has a very good post over at VC Cafe entitled “The Golden Age? Israeli Startups Experience Funding Streak“. According to Vidra, “In 2007, Israeli venture capital funds raised a total of $1.1 billion (including venture lending), 21% more than in 2006″. The industry is expecting a slow down on the fund raising side in 2008 and the article shows some good analysis about what may happen to these flush companies and funds in the future.

The same article mentions that M&A activity involving Israeli companies that were either acquired or merged totaled $3.2 billion in 2007 in 75 deals – the second highest number of M&A deals in any one year to date. I find that stat interesting. Outside of ECI Telecom and Gilat (GILT) getting bought out last week, the M&A activity for the publicly-traded Israeli companies that we follow has been kind of quiet.

For now, Barron’s prediction that Check Point (CHKP) will get bought by IBM is just speculation.

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