Israeli tech firm exits totaled of $12.63 billion in 2018, down from $23.7 billion in 2017, a report by IVC Research Center and attorneys Meitar Liquornik Geva Leshem Tal shows.
The 46.7% drop in the value of exits — initial public offerings or merger and acquisition deals — in 2018 is due to the fact that Israeli entrepreneurs are not selling as eagerly as before and holding out for longer in the hope they can grow their firms, said Shira Azran, partner at Meitar Liquornik Geva Leshem Tal & Co.
Indeed, tech investment data for 2018 shows that tech companies are raising bigger and bigger amounts from investors, preferring to grow rather than sell. Out of the companies that raised funds in 2018, 100 firms raised over $20 million apiece last year, for a total of $4.1 billion, four times the 2013 amount, a report by IVC Research Center, which tracks the industry, and attorneys Zag-S&W showed.
Total investments in Israel’s high tech sector peaked in 2018 at $6.47 billion across 623 companies, compared to $5.5 billion across 661 companies in 2017, reflecting an increase in the average investment amount per deal, the IVC-Meitar report said.
“This combination of a significant increase in the volume of investments in growth companies and a relative stagnation in exits value, highlights the fact that Israel is building a strong and significant infrastructure of companies that in the coming years will examine their ability to reach an exit that reflects a significant return to investors,” Azran said.
The four largest exits of 2018 captured almost 65% of the total exit value, the report said. These were the sale of Orbotech to KLA-Tencor for $3.4 billion, a deal that has not closed yet); the acquisition of Imperva by Thoma Bravo for $2.1 billion; Medronic’s acquisition of Mazor Robotics for $1.6 billion (subject to closing); and SynaMedia, formerly NDS, which was acquired by Permira for $1 billion. The figures exclude exits of over $5 billion, the report said.
The drop in value and in the number of deals – 103 deals in 2018 vs 133 deals in 2017 – stems from a 20% drop in the number of merger and acquisition deals in 2018 compared to the year earlier, the report said. During 2014–2017 the number of M&A deals was relatively stable.
The decrease in M&A deals was mostly focused on deals with a value of less than $20 million, the report said. The number of deals of $100 million–$250 million remained stable, while there was a decrease from previous years in the number of deals between $250 million and $1 billion.
The number of Israeli firms buying other Israeli firms almost halved in 2018, dropping to 22 deals in 2018 for a total value of $578 million from 40 deals at a value of $765 million in 2017. “This decrease is one of the main factors leading to the decrease in the total number of transactions in 2018,” the report said.
In 2018, 78% of the M&D deals by value were done by US firms, 8% by UK firms and 6% by Israeli firms and just 1% by Chinese firms, the report said, compared to 43%, 8% and 10% and 3%, respectively in 2017.
Last year, capital markets continued to be an insignificant source of liquidity for Israeli tech firms. Indeed, just five Israeli companies completed their IPO in the US, all of them in the life sciences field, raising an aggregate of $246 million. Three Israeli companies completed an IPO in Australia, raising a more modest $12 million. This compares with a total of 12 IPOs in 2017 and 17 in 2014, with the US still the preferred market for tech firms.
Exits of life-sciences companies surged to $2.98 billion in 24 deals, compared to $2.18 billion in 18 deals in 2017. This is a significant jump from the total exits valued at $733 million in 2014. Internet exits, in contrast, dropped sharply to just 12 deals at a total value of $114 million, from 33 deals valued at almost $1.4 billion in 2017.
Exits of AI-based tech firms totaled $1.15 billion in 14 deals in 2018, up from $307 million in 2017 but still lower than the $1.66 billion worth of exits in the sector in 2014. Cybersecurity exits totaled $2.81 billion, compared with $1.36 billion in 2017.