Israeli technology companies witnessed a drop in proceeds from exits in the first half of the year compared with the same period a year earlier and Israeli companies are using this lull in activity to focus on growth, a new report from IVC-Meitar High Tech Exits shows.
Proceeds from mergers and acquisition activity and initial public offerings declined 28 percent to $3.32 billion from $4.24 billion in the first half of last year, in 45 exit deals in first half of the year compared with 64 deals in the same period last year. The figures do not include deals over $1 billion, the report compiled by IVC Research Center, which tracks the industry, and law firm Meitar Liquornik Geva Leshem Tal, show. IPO activity plunged, with just one company issuing shares in the first half of the year.
The average exit deal totaled $74 million in the period, three percent above the annual exit average of $72 million in 2015.
The largest deals in the first half of 2016 were the $811 million acquisition of EZchip Semiconductor Ltd. by Mellanox Technologies Ltd. and the $643 million buyout of Xura Inc, followed by the $430 million acquisition of Ravello Systems by Oracle. The top three deals accounted for 57 percent of total exit deals.
There was just one initial public offering of shares in the first half of 2016, compared with 6 in the first half of 2015, as international markets turned sour on tech deals at the end of 2015, the report said. Israel’s trendIT Ltd. was the only company to hold a new offering of shares, raising $5.9 million on the London Stock Exchange, compared with a total of $327 million raised in IPOs in the first half of 2015 and 573 million in the first half of 2014.
The decrease in the number of deals in the first half of 2016 was expected in light of an overall slowdown in activity in technology companies and especially a decrease in capital in the United States, both in the private sector and public markets, Dan Shamgar and Alon Sahar, partners at Meitar, said in a statement.
The decrease in private companies’ valuations, along with share price fluctuations in the United States and China, led to cautious investor behavior and to what was practically a halt in acquisitions as companies were not willing to compromise on price. “We expect this slowdown to continue in the second half of 2016 as well,” Shamgar and Sahar said.
Even so, the report underlines, exit numbers are typically low in the first half of the year, and are in line with the average annual rates in the past six years. IVC and Meitar estimate that for the full year, there will be a 13 percent drop in proceeds generated by exits compared with 2015. The report forecasts there will be at least 100 exit deals that will have closed in 2016, totaling around $7 billion, compared with the 111 deals in 2015.
Even as there is a decline in exit volumes, “we believe companies are using the current market atmosphere to focus on growth rather than an exit,” Koby Simana, CEO of IVC Research Center said.
“Not only are there more companies seeking growth these days, but it seems investors are also more inclined that way, if the relative ease of raising capital for Israeli high-tech companies in growth stages is any indication,” Simana said. “We will be publishing the capital raising statistics soon, but I can already confirm that capital raising is on the rise.”
As Israeli high-tech companies mature and grow, more companies are able to expand by utilizing capital raised or earned by acquiring other companies, the report shows.
Israeli companies bought other Israeli companies in a total of nine deals since the beginning of the year, for a total of $916 million. However, most Israeli acquirers directed their acquisition efforts to international markets, with $1.2 billion spent on acquisitions of foreign companies, in 21 deals, the report said.
Toward the end of 2016 or beginning of 2017, there will likely be an increase in the number M&A deals in the local market, the report said. This is because, over the past three years, Israeli high-tech companies have expanded their activity in the local market, and the volume of deals where both parties were Israeli has grown considerably.
The Israeli Tax Authority and the Ministry of Finance are also considering providing tax incentives to boost Israeli companies conducting M&As, the report said.