Israeli start-ups focus on IPOs in 2014 exits, report finds
As their confidence grows, more tech firms are seen going public instead of ‘selling out’
The year just ended was a healthy one for Israel’s tech industry, a report by the IVC Research Center and the law firm of Meitar Liquornik Geva Leshem Tal said Tuesday. Exits – a start-up either being acquired by a bigger firm or going public on a stock exchange – were up about 5 percent over a year earlier, totaling $6.94 billion.
While the results were satisfactory, the real news was in two significant trends researchers discovered, IVC said. There were more big exits in 2014, with 18 of the 99 Israeli high-tech exits valued at between $100 and $500 million, sums that only 12 of 2013’s deals achieved. And there were more Israeli IPOs in 2014 than any time in the past 10 years – a trend, experts said, that indicated that Israeli start-ups were more confident in their technology and more willing to take their chances as independent companies.
Of the 99 exits, 19 IPOs accounted for $2.1 billion of the nearly $7 billion raised, with the largest, that of road safety tech system MobileEye, alone raising slightly over $1 billion when it went public on the New York Stock Exchange. In general, bigger was better for Israeli exits in 2014, with deals in the $50 million to $100 million range soaring 156% from the previous year. Eight of the 13 exits in that range were IPOs, accounting for 58% of the total proceeds. Meanwhile, there were 36% fewer companies that raised $5 million or less in their exits.
While IPOs were up, mergers and acquisitions were down on 2014, the report shows. Israeli M&As were worth $4.84 billion, a 22% decrease from the $6.23 billion raised M&As in 2013. Sixteen of the M&As accounted for $2.91 billion of the exit totals, compared to 11 deals in 2013 that brought in $2.57 billion altogether. Of these, five deals ranging between $50 million and $100 million brought in $425 million, a 73% increase over the four deals in 2013 that totaled $246 million. The number of M&As ranging from $10 million to $50 million also increased and was up approximately 13% from the previous year.
The IVC-Meitar figures were at odds with another report published last week by accounting firm PwC, which estimated 2014’s exits at a record $15 billion. According to IVC Research Manager Marianna Shapira, the more conservative IVC figures were based on the actual cash value of the deals, while PwC and other firms were using figures based on the valuation of companies after their IPOs, which were generally much higher than the initial cash raised.
PwC could not be reached for comment, although it should be noted that in many cases – such as MobileEye and advanced medical device maker ReWalk Technologies – their newly minted shares jumped significantly after their IPO and in many cases are still trading significantly higher that their initial price.
According to Meitar partner Alon Sahar, the results, especially regarding the number of IPOs, were “reassuring. Sometimes IPOs reflect a ‘market trend’ stemming from public readiness to invest in certain sectors, such as life sciences. In other cases, IPOs reflect the real ability of the industry to build larger companies for the long term.”
In Israel’s case, both reasons apply, he said.
“In light of success stories such as Mobileye and CyberArk, two companies that brought on investors at later stages and then followed the IPO road, more companies can be expected to turn in the same direction,” noted Sahar. “This trend and the appeal of building larger companies may also explain current findings on M&A proceeds, where the number of deals below $5 million dropped to the lowest in a decade, with only 25 deals.”
Koby Simana, CEO of IVC Research Center said that “although 2014 M&A figures show a decrease in total proceeds from the previous year, 2014 was actually far more successful in terms of return on equity for investors. Proceeds from M&A are divided among entrepreneurs, investors and sometimes company employees, and investors expect a positive return on equity. In the venture capital industry, it is customary to strive for a minimum return of three times equity. In these terms, 2014 was an excellent year, especially in the life science, cleantech and communications sectors, with the highest annual return on equity.”