Israeli high-tech companies closed 104 exit deals in 2016 for a total of $10 billion, up 12 percent from 2015, a new report by IVC Research Center and law firm Meitar Liquornik Geva Leshem Tal shows.
Exit deals are either merger or acquisitions, investor buyouts, or initial public offerings by firms.
The 2016 exits figure includes 93 merger and acquisition deals, for a value of $8.8 billion, including the $4.4 billion sale of online gaming company Playtika to online Chinese gaming company Giant Interactive group, the largest acquisition that year. Without including the Playtika deal, the exit figures are “substantially lower than in previous years,” said Alon Sahar, partner at Meitar.
“Following several years of growth both in terms of deal numbers and their proceeds, 2016 presents an obvious slowdown,” in exits, said Alon Sahar, partner at Meitar. “It’s impossible to tell whether this is the beginning of a new trend or a natural correction due to significant hikes in previous years. We will need to wait a few quarters to see whether or not the market is facing a profound change.”
There were eight investor buyouts in 2016, totaling $1.22 billion — and three initial public offerings for a total of $15.1 million.
The average exit deal in 2016 was $46.3 million, 31 percent below the previous year’s average, which stood at $67.2 million, and 21 percent below the five-year average, the report showed.
However, “2016 was by no means sub-par,” said Koby Simana, CEO of IVC Research Center. Indeed, the average exit multiple — calculated as the ratio of capital invested into the companies before the exit and the capital generated by either the IPO or the M&A deals, was 4.34x, higher than the five-year average, though lower than the record 5.29x ratio in 2014.
The relatively high exit multiple, coupled with the lower number of deals compared to 2015 — 104 vs 124 – suggests that “entrepreneurs and investors may not be pushing for exits as they once did” and are looking at other alternatives, and opting for company growth, Simana said.
The second largest deal in 2016 was the $811 million acquisition of EZchip by Mellanox, both of them Israeli companies. This deal, along with the Leaba Semiconductor acquisition by Cisco and Sony’s acquisition of Altair Semiconductor, established the semiconductors sector as a clear leader in 2016 exits, with an all-time record of $1.39 billion, 32 percent of total exits and over twice its average in the past five years, the report said.
Last year was also a year in which Israeli companies went on a shopping spree for other companies, leading to an all-time record of $3.28 billion in M&A expenditures by Israeli companies, in addition to over $45 billion in M&A deals made by Teva Pharmaceuticals alone in 2016.
Cybersecurity will continue to be one of the strongest tech clusters in Israel, the report said. Startups raised a record $700 million in investments in 2016 and multiples were far above the industry average, though they dropped to 5.54x in 2016 from 6.93x in 2015
“With over 450 active Israeli cyber security companies today, this sector is likely to continue to expand, while producing individual exits,” the report said.
While Israel’s automotive cluster is still relatively small, with a little over 260 companies operating in the cluster, it has “generated some serious interest worldwide,” the report said. In 2016, six exit deals garnered a total of $205 million with a high 11.8x exit multiple average in the automotive cluster.