What is the IIA restriction and why does it matter in Israeli M&A?

The Israel Innovation Authority (IIA) provides R&D grants under the Law for the Encouragement of Industrial Research and Development 5744-1984. Any IP developed with those grants is subject to Section 19C of that law, which prohibits transferring the know-how or manufacturing rights outside Israel without prior IIA approval. Failure to obtain approval can expose both the buyer and the target's directors to a penalty of up to 600% of the original grant amount plus criminal liability.