US multinational corporation Honeywell’s acquisition of Petah Tikva-based cybersecurity company Nextnine for a reported $35 million last week highlights the dilemmas facing company founders who need to weigh whether to continue running their company independently or agree to an alluring acquisition offer.

“Sometimes you have to make a tough decision, and sometimes companies miss their right moment,” said CEO Shmulik Aran, who has been at the helm of Nextnine for the past 10 years.

Honeywell said last week that it had signed an accord to buy the Israeli firm, which makes software to protect industries and critical infrastructures. The acquisition is a first for Honeywell in Israel and Nextnine will become the base of its activities and R&D center locally, Aran said.

Terms of the deal were undisclosed, but Israeli press reports estimated it at about $35 million. Nextnine has been backed to date by Infinity VC, XT Hi-Tech and other investors.

Nextnine CEO, Shmuel Aran (Courtesy: Arthure Forer)

Nextnine CEO Shmulik Aran (Courtesy Arthure Forer)

Aran said that what tipped the balance toward a sale was the fact that the market the company operates in is a very “slow-evolving” and conservative market.

“We considered: Do we go for the long ride and raise some $20 to $40 million, or do we take a smaller offer and go on and implement the future, our dream, within a larger operation? At the end of the day we decided to take the offer.”

More and more Israeli entrepreneurs are refraining from selling their firms and opting to grow them in the hope of greater profitability and larger valuations down the road, IVC Research Center, which tracks Israel’s high-tech industry, said in a 2016 exits report. In March this year Intel Corp. signed an accord to buy 18-year old Mobileye, a maker of automotive technology, for a whopping $15 billion, making it Israel’s largest tech deal ever.

New Jersey-based Honeywell, a former customer of Nextnine’s cybersecurity software, invents and commercializes technologies that blends physical products with software. The firm operates in four areas: aerospace, home and building technologies, performance materials and technologies, and safety and productivity solutions.

Honeywell has the largest industrial cybersecurity research capabilities in the industry and has continued to increase its industrial cybersecurity offerings, the US firm said in a statement announcing the deal. In 2016 Honeywell reported $39 billion in sales and had a market capitalization of $102 billion as of mid-June. The firm employs some 131,000 workers globally.

Founded in 1998, Nextnine’s software, ICS Shield, protects industrial sites from cybersecurity attacks. The software allows users remote access to their plants in a secure and granular way, meaning they can trace who has accessed their system and get alerted if something is amiss. In addition, the software allows inventory discovery, which helps them know which devices are or aren’t protected.

“There are so many devices that are so old that managers don’t know what devices they need to protect,” Aran said.

The deal will help complement the cybersecurity portfolio that Honeywell offers its customers in more than 6,200 sites globally across the oil and gas, utility, chemical, mining and manufacturing sectors, the statement said.

Joining the thrill of a startup within Honeywell

“It is a very thrilling, very positive deal for everybody,” Aran said. The 35 Nextnine employees will be incorporated into Honeywell, but will be “joining a kind of startup within Honeywell,” he said, a 200-member team focused on developing cybersecurity products for industries and critical infrastructures.

Honeywell “plans to grow this organization — the unit — to several hundred million dollars in sales, leveraging our product,” Aran said. “They have a very aggressive growth plan for this unit and for us within that unit.”

The urgency of creating technologies to protect critical infrastructures such as oil rigs, electricity and water utilities has grown as hackers have demonstrated their ability to infiltrate and upset the operations of vast industrial plants globally. The malicious worm Stuxnet, discovered in 2010, targeted industrial computer systems and was believed to have damaged Iran’s nuclear program. Most recently, malicious software dubbed Crash Override, or Industroyer, has been blamed for a 2016 power outage in Ukraine.

Pandora box

“Stuxnet opened a Pandora’s box,” said Aran, who served in the Israeli army’s elite 8200 intelligence unit, and was also part of its elite Talpiot program. “Everyone understood that we have a situation in which critical infrastructures and industrial facilities are all so vulnerable.”

Even after the acquisition, Nextnine’s employees will stay in Israel. Earlier this month Honeywell’s integration team and the general manager of the unit that will incorporate the Israeli firm visited Israel.

“The company stays in Petah Tikva,” Aran said. “They want everyone to stay on board and we are building an integration plan now and intend to implement it.”

“This is the first acquisition of Honeywell in Israel and the base of the growth of Honeywell here,” Aran added. “They know that there is a very impressive cybersecurity community in Israel and so they want to grow their presence here. That means adding more people to the R&D center.”

Aran said Nextnine had previously received a number of offers from other companies as well. But Honeywell was the best fit both at the “mentality level and on the strategic intentions level,” he said.

“It was a long and interesting ride,” Aran said of the company’s journey from startup to exit. Now, “the whole team is staying on board and running forward and continuing to implement the dream within this new home of ours.”