Israeli high-tech “exits” — merger and acquisition deals and initial public offerings — declined sharply in 2018 amid a maturing of the local tech ecosystem as entrepreneurs hold out for higher valuations, as well as the relative instability of global markets, with the shadow of the US-China trade feud and higher interest rates, clouding the sentiment for deals.
Exits in 2018 posted a 33% drop compared to the number of deals in last year, a PwC Israel 2018 Exits report showed.
In 2018 there were 61 exit deals totaling some $4.9 billion, the report showed, with the average deal being around $81 million, compared to an average deal size of $106 million last year.
The decline in the number and value of the deals is an indication of a maturing of the industry, the report said, as homegrown companies that have access to readily available funding and prefer to “run longer distances” are seen holding out for longer, and for higher valuations, before a sale.
A new breed of patient investors has sprouted in recent years alongside entrepreneurs who are more savvy, with stronger managements that are able to steer their ships over an extended period of time before a sale, the report said.
“On the flip side, the relative instability of global capital markets, the US-China trade feud and rising interest rates in developed countries are just examples of the factors that may weigh heavy and add to the uncertainty that has lately overshadowed the market,” the report said.
Among the notable deals this year were the Datorama acquisition by Salesforce, Velostrata’s buyout by Google and Facebook’s acquisition of RedKix.
All of these show that “the local high-tech market is still a magnet for technology giants and overseas players to find creative solutions backed by deep technologies,” the report said.
“Local companies have the ability to quickly identify needs and find solutions in critical areas in the ever-changing world,” in fields as varied as cloud technologies, information processing, and communications.
In the cybersecurity field, Cygnia was acquired for $250 million by Tamasek Holdings, Check Point Software Technologies snapped up Dome9 for $175 million, and Palo Alto Networks bought Secdo for $100 million.
Israeli startups in the food technology sector also made headlines: Tapingo, which offers an advanced platform to order food, was acquired by Grubhub for about $ 150 million and Dutch firm Takeaway.com NV bought Tel Aviv-based popular online food ordering firm 10bis for some $158 million in cash.
The figures in the report do not include notable deals that happened in 2018 and that were above the $1 billion mark, because many of these were second exits. For example this year Mazor Robotics, whose shares were already traded on the stock exchange, was bought by Medtronic in September for $1.6 billion, and Orbotech was sold for $3.4 billion to US firm KLA-Tencor.
Companies in the $1 billion dollar club were this year joined also by firms that were not strictly tech-based, like SodaStream, the maker of carbonated water drinks, which was acquired by PepsiCo Inc. for $3.2 billion and flavorings maker, and Frutarom, which was sold to for $7.1 billion to US firm International Flavors & Fragrances (IFF).
What lies ahead
“It is obviously difficult to predict what lies ahead, but if we try to set one prediction in stone, it is that the Israeli high-tech market will continue to be a fertile breeding ground for the world as business models and economic processes continue to be disrupted in a faster and faster pace,” the report said.
“Although 2018 was slower, it worth keeping in mind that this has been a seller market for some years now. All the factors discussed here point that the number of mature tech companies is going to be greater than ever,” the report added.
It is unclear what 2019 holds, the report said, “but assuming things will get back to normal, then there are quite a few Israeli companies that are ready for an IPO or another significant event in the coming year.”