For Israeli high-tech companies, 2015 was a very good year.
There were a total of 104 exits of all types during the course of the year, worth over $9 billion to the firms and their investors. Venture-capital backed exits hit a decade high, while the average value of mergers and acquisitions was significantly higher than a year earlier. Indeed, for investors in Israeli tech firms, the watchword in 2015 was more, a report by research firm Israel Venture Capital (IVC) said: More deals, worth more money, for more companies, as compared with recent years.
The figures were issued Monday by the IVC Research Center, which worked with the Meitar Liquornik Geva Leshem Tal law firm to compose the IVC’s annual Exit Report. The report shows that the top three exits in 2015, each above $500 million, jointly accounted for 30 percent of the total exit proceeds. The $1.25 billion acquisition of Fundtech by D+H, an international fintech company, alone accounted for almost 14 percent of the total exit proceeds in 2015. The acquisition of Valtech by HeartWare followed, with $929 million, and Ex Libris’s acquisition by ProQuest accounted for $500 million.
But lesser companies thrived as well during the year, the IVC report said. Venture capital-backed exits hit a ten-year high, with over 50 exits netting companies and investors a total of $4.98 billion. That was even better than 2013’s $4.04 billion, which included Waze’s $1.2 billion acquisition by Google, and the 52 exits during the year was the second highest ever, surpassed only in 2006, when there were 57 VC-backed deals. Also impressive, said the report, was the size of the deals, with the average deal worth nearly $96 million, 47 percent above the 10-year average for that figure and second only to the record of $106 million set in 2013.
Koby Simana, CEO of the IVC Research Center, attributed the very positive returns for VC investments to “the patience and perseverance with which VC funds have been managing their Israeli portfolios lately. The VCs, many of whom have been successfully raising new funds in the past two years, have enough breathing room to patiently wait for portfolio companies to realize their full potential. One of the things our analysis revealed was that the average time to exit in VC-backed deals keeps climbing, reaching 9.5 years in 2015 – narrowly within the VC model timeline. The funds’ willingness to sit and wait for a portfolio company to mature enough for a substantial exit, seems to pay off, as the average deal and return on equity are climbing as well.”
Mergers and acquisitions, in which an Israeli start-up is swallowed up by a multinational, also neared record value levels. The 96 high-tech M&A exits recorded in 2015 were worth $8.4 billion, the third highest number in a decade, and a marked improvement over the 2014 ($5.67 billion) and 2013 ($6.35 billion) figures. In 2014, however, there were more M&A deals – 99 – meaning that the average size of deals jumped 53% in 2015, to $88 million, over 2014’s average of $57 million.
Thirty-nine of those 2015 M&A deals were between $50 million and $500 million, the report added – accounting for $5.44 billion of the $8.4 billion total, 30% more than the $4.17 billion for this segment in 2014. Along with that, there were fewer M&A deals valued at less than $50 million – but in that segment, too, the average deal was higher than in 2014, “further demonstrating that the increase in average deal size is not a statistical oddity, nor a result of a few extremely large deals, but reflecting a real trend for M&A activity,” the report said.
M&A wasn’t just about selling out; Israeli buyouts of foreign tech firms accounted for 30% of the total deals in that area. Twenty-four Israeli or Israel-related high-tech companies directed some of their M&A funds locally, acquiring 26 Israeli high-tech companies, with the deals totaling $1.18 billion, the report shows.
Alon Sahar, a partner in Meitar Liquornik Geva Leshem Tal, noted that “2015 continued to reflect the significant activity trend in the mergers and acquisitions market in the past few years, showing an increase both in the total dollar amount of M&As and the average deal amount. The growth figures disclose, among other things, companies’ readiness to be sold after they exhaust their growth opportunities. Companies are still being acquired for their human resources and technology assets, but in more and more cases the acquired companies have a real ability to penetrate markets and establish an impressive business as a unit of their new parent company – a fact which is translated into the higher valuations we are seeing.”
IPO exits in 2015, meanwhile, slowed down in 2015, accounting for just 7% of the total exit proceeds in 2015, a dramatic falloff from 2014, when companies going public accounted for 27% of all exit proceeds. While the Israeli tech economy has been, until now, perceived to be more resistant to the economic woes plaguing the world – such as the current stock rout in China (which has also hit markets in the West), the third investment panic in the past eight months on world markets – the smaller number of Israeli companies willing to take a risk on capital markets by going public could be at least partially attributed to the insecurity of world stock markets.
“The number of deals was lower than expected, as many companies shelved their IPO plans after worldwide IPO markets in general, and NASDAQ in particular, no longer seemed to offer favorable conditions for initial public offerings,” the report said. Still, three companies of the eight that went public did quite well, the report said – accounting for 70% of the amount raised in IPOs during 2015. Those three (all listed on the Nasdaq) were life sciences firms Novocure (which raised $165 million in its IPO) and Chiasma ($117 million), and cleantech firm SolarEdge ($145 million).
According to Dan Shamgar, another Meitar partner, “the American capital market jn 2015 was not particularly receptive for IPOs, and as a result NASDAQ IPOs were chosen as an alternative only by a small number of companies. Looking ahead, it seems the IPO market will remain mostly closed for most companies, at least in the first few months of 2016. The M&A market, however, will remain active. Joining the ‘seasoned acquirers’ such as Microsoft, who have bought numerous Israeli firms, we see a trend of new buyers joining the exit market in Israel. In the past year, the new players included conglomerates such as Infosys and Amazon, and we believe additional strategic players will perform acquisitions in order to establish their presence in Israel.”