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M&A Considerations in the context of Distribution Agreements

When a foreign supplier (to an Israeli distributor), an Israeli distributor or the business and/or assets of an Israeli distributor are the target of the M&A activity, the following matters need to be considered, among others:

  • Confidential information: It is common practice in Israel that distribution agreements consider almost any information related to the supplier’s business as confidential. Therefore, a due diligence process in itself could jeopardize the distribution agreement. Extreme care should be taken when considering if, in that context, the acquirer’s advisors will be considered as an authorized person to review the confidential information, or, for example, if signing a particular non confidential agreement will satisfy non disclosure provisions.
  • Permanent establishment and governing law and forum: The acquisition of an Israeli subsidiary does not per se imply that the subsidiary will become a “permanent establishment” of the foreign holding company or its “authorized representative”. However, it is recommended to avoid certain arrangements in the sale and purchase agreement that could potentially create such statuses.
  • Antitrust: M&A activities can revoke the exemption certain exclusive distribution agreements enjoy from the need to be authorized by the relevant regulator. For example, if as a consequence of the acquisition of the foreign supplier or the Israeli distributor the parties of the distribution agreement will be considered as competitors, or the acquisition will prevent the supply of substitute products into the Israeli market, or one of the parties to the distribution agreement will become a monopoly on that product or similar product in the Israeli market, or the distributor’s market share will pass the 30% threshold, etc.
  • Financial services: The acquisition of an Israeli financial institution usually requires the prior approval of the relevant regulators, such as the Supervisor of Banks or the Superintendent of Insurance. Only approved entities can hold a license to distribute “financial services”.
  • Assignment rights: Under certain circumstances the distribution agreement could be interpreted as limiting the right of the distributor to assign the agreement. Care should be taken when considering a change of control over the distributor as this could be considered as a way of assigning the distributor’s rights and obligations under the agreement.
  • Consents and Termination: Some distribution agreements may be terminated by the supplier upon a change of control over the distributor, change of marketing capabilities (e.g. in the case that a business unit is the target of the M&A), or change of key people.

For more information, please do not hesitate to contact Alejandro Skidelsky at