Israeli tech exits plunge 80% to $16.9 billion in 2022, battered by market reality

Number of Israeli tech M&As and IPOs plummets 58% as interest rate and valuation environment push entrepreneurs and investors into a wait-and-see mode

Sharon Wrobel is a tech reporter for The Times of Israel.

Tel Aviv's financial business district skyline, June 2022. (Elijah Lovkoff via iStock by Getty Images)
Tel Aviv's financial business district skyline, June 2022. (Elijah Lovkoff via iStock by Getty Images)

2022 was a tough year for Israel’s tech industry, with the number of “exits” — mergers and acquisitions or initial public offerings of shares — dropping 58% from the previous year as the uncertain specter of higher interest rates and valuations pushed entrepreneurs and investors into a wait-and-see mode.

The value of these Israeli tech exits, including M&A’s and IPOs, this year slumped a staggering 80% from 2021 and totaled $16.9 billion, according to the 2022 Israel High Tech Exit report by consultants PwC Israel. The number of deals dropped 58% to 72 from 171 last year, with the average value of the deals plunging more than 50% to $235 million from $482 million during the same comparative period.

In 2021, Israel’s tech firms saw exits jump an astonishing 520% in 2021 to an unprecedented $81.2 billion in value, shattering all previous funding records and as companies raised $25.6 billion in private investments at higher valuations. The large flow of funds led to high company valuations, and sometimes overvaluations of companies that were not close to turning a profit.

But in 2022 the market started to turn, and valuations and shares traded publicly have been taking a battering amid rising inflation and interest rates, with the ongoing Russian war on Ukraine impacting supply chains and the global economy, and investors hunkering down.

The market downturn has seen thousands of workers laid off triggering funding pullpacks and creating a bear market for new tech offerings, with an overall sense of doom clouding the economy. As a result, Israeli tech exits are returning to the levels seen in 2020, which counted 60 transactions valued at $15.4 billion, and 2019 with 80 deals valued at $9.9 billion.

“After a long stretch of continuous climbing led by the local high-tech market, with numerous deals and ever-rising valuations, the last year was characterized by a significant slowing down,” said Yaron Weizenbluth, partner at PwC Israel. “The rampant inflation, the growing uncertainty and the rising interest rates brought back to the fore some economic terms that were not around for a quite a while, and left investors and sellers waiting by the sidelines.”

Mobileye celebrates its IPO by ringing the opening bell at the Nasdaq MarketSite, on October 26, 2022. (Michael M. Santiago / GETTY IMAGES NORTH AMERICA / Getty Images via AFP)

“Sellers now want to avoid a transaction that represents a lower-than-expected value. On the other side, given the uncertain reality, buyers are hesitant to close deals at prices that can turn out to be overblown,” Weizenbluth added.

The PwC figures did not include follow-on transactions — when companies that already had an exit have a second sale. Taking into account follow-on transactions, the total value of IPOs and M&As for 2022 jumps to $47 billion, but is still way down from the $99.2 billion recorded in 2021, the data shows. Mobileye’s $16.7 billion IPO on Nasdaq in October marked one of the large follow-on deals, valuing Intel’s Jerusalem-headquartered autonomous driving subsidiary at over $21 billion.

“One should not ignore the fact that 2022 saw not fewer than 15 such [follow-on] deals, with a total value of $30 billion, the highest amount in more than 10 years,” said Weizenbluth.

On a positive note, Weizenbluth pointed out that the proportion of deals closed by Israeli buyers is similar to last year.

“In 2022 no fewer than 23 deals were all Israeli, representing 32% of the total deal count,” Weizenbluth remarked. “This is a testament of the robustness of the local industry.”

A breakdown of the tech exit data for 2022 shows that the number of acquisitions amounted to 59 with a combined value of $6.2 billion, down from the 99 totaling $11.5 billion in value recorded in the previous year. A total of 13 IPOs were completed this year, led by the $8.5 billion offering by Israeli fintech firm Pagaya. The maker of data-driven investment software went public on Nasdaq through a merger with a special-purpose acquisition company (SPAC), EJF Acquisition Corp.

Pagaya team at work in Tel Aviv office (YouTube screenshot)

IPOs accounted for $10.7 billion of the exit total this year, down from $71 billion in 2021, PwC said, noting the average value per IPO of $822 million remained close to last year’s figure of $985 million, mainly thanks to the Pagaya offering. Excluding, the Pagaya IPO, the average value per IPO amounted to $181 million.

Sector by sector analysis showed that in 2022, the IT & enterprise software sector continued to lead the exits, with 38 deals valued at $11.5 million, such as the acquisition of Israeli computing tech startup Granulate by US chip giant Intel Corp. for about $650 million and Google’s $500 million deal to buy Israeli threat detection firm Siemplify. In 2021, deals in IT & enterprise software sector had a combined value of $40.6 billion.

At the same time, deals in the internet sector, which boomed during the coronavirus pandemic, saw a big hit pushing the number of transactions back to the levels seen before 2021, as a total of 12 deals with a combined value of about $1.3 billion were recorded in 2022 versus 35 deals valued at $28.8 billion in the previous year.

Looking ahead to what 2023 will bring, Weizenbluth said: “Assuming that the deals earlier in the year were still a product of inertia from last year, the likely scenario is that we will witness multiple smaller-scale deals, which will reflect the right sizing of pricing and the ability to take advantage of new opportunities.”

“Indeed, the local industry will have to get accustomed to this transformation into a more selective, cautious and even modest market.”

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