Israeli tech exits drop to lowest level in years amid pandemic

Worth of merger and acquisition deals and IPOs falls by almost 60% in first half of 2020, report finds

Shoshanna Solomon is The Times of Israel's Startups and Business reporter

The empty Ayalon highway near the entrance to Tel Aviv's usually buzzing business district, April 8, 2020. (Miriam Alster/Flash90)
The empty Ayalon highway near the entrance to Tel Aviv's usually buzzing business district, April 8, 2020. (Miriam Alster/Flash90)

Exits of Israeli tech companies, defined as mergers and acquisitions or initial public offerings of shares, declined almost 60 percent in dollar terms in the first half of this year to their lowest level in six years, suffering from the fallout of the coronavirus pandemic, a new report by IVC Research Center and attorneys Meitar Law Offices shows.

The report shows that in the first half of 2020 there were 52 exits (including IPOs, M&As and buyouts) with a total value of $5.82 billion, down from 77 exits with a total value of $14.3 billion in the first half of 2019. This is the sharpest decline in the last six years, IVC said in a statement.

The first half of 2019 data includes the $7 billion acquisition of Mellanox Technologies Ltd. by Nvidia Corp, which distorts the figures significantly.  Excluding that deal and taking into account only deals of up to $5 billion, the decline in exits this year is a more moderate 22%, IVC said.

“Looking at the exit activity in the first six months of 2020, we see the substantial effect of Covid-19 bringing a significant decline in exits,” said Shira Azran, a partner at Meitar, in a statement.

The data backs up what is being felt in the industry, she said. In light of the crisis, investors and buyers are protecting market share and revenues and preserving cash, rather than deploying capital on acquiring companies.

Moreover, it is more “challenging” than before to hold merger and acquisition (M&A) negotiations, and uncertainty is clouding even those transactions that have been signed.

“We anticipate that H2/2020 will continue this downtrend in exits,” she said, especially if further waves of the pandemic take place.

An Israeli laboratory worker is pictured as she conducts serological tests at the Leumit Health Care Services laboratory in Or Yehuda, near Tel Aviv on June 29, 2020. (GIL COHEN-MAGEN / AFP)

Companies in the field of digital health, financial technologies and digital services in general, which have benefited from the pandemic as lockdowns have created a demand for more digital services, will probably and hopefully be the basis of exits in future years, the report said.

In the first half of 2020, there was one buyout deal, three IPOs and 48 M&A deals. A buyout is an acquisition of a controlling stake or the entirety of a company by a financial investor or consortium of investors, such as private equity funds, according to IVC-Meitar criteria.

Top exit deals in the first half of the year included the $900 million acquisition of Israeli startup Moovit by Intel Corp., the buyout of Armis by Capital G and Insight Partners for $1.1 billion, the acquisition of CheckMarx by Hellman & Friedman for $1.15 billion, and the acquisition of CyberX by Microsoft for $165 million.

The three IPOs in the first half of the year were of Ayala Pharmaceuticals and Polypid on the Nasdaq, and SaverOne on the Tel Aviv Stock Exchange.

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