Exits Down as Global High-tech Slowdown Reaches Israel

IVC says mergers and acquisitions exits declined to $3.32 billion in January to June.

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High-tech workers in Israel.
High-tech workers in Israel. Credit: Tomer Appelbaum

The global high-tech slowdown reached Israel in the first half of the year, with mergers and acquisitions by Israeli tech companies declining sharply from 2015 levels and just a single initial public offering being completed.

IVC Research Center said in a report released Tuesday that the total value of M&A exits in the first six months of 2016 was $3.32 billion, down from $5.29 billion in the parallel last year. The number of deals fell to 45 from 54.

The only IPO was from Trendit, which raised just $5.9 million for trading on the London Stock Exchange. Four buyout deals added $878 million to the figure, increasing the total exit amount to $4.19 billion for the half, IVC said.

IVC said the pace would likely improve in the second half, resulting in at least 100 deals generating $7 billion in proceeds for the year, a 13% decline from 2015.

The decline in exits, a key metric for Israel’ startup-focused tech sector, stands in sharp contrast to the record levels of fundraising by companies this year, including a $300-million investment by Volkswagen in Israel’s taxi-hailing service Gett. While fundraising has declined in the United States, Israel is poised to set a record in the second quarter.

Koby Simana, CEO of IVC Research Center, said the effervescent fundraising environment compared with the slowing in the United States and China might explain the decline in Israeli exits in the first half.

“Companies are using the current market atmosphere to focus on growth rather than exit,” he said. “Not only are there more companies seeking growth these days, but it seems investors are also more inclined that way, if the relative ease of raising capital for Israeli high-tech companies in growth stages is any indication. ... I can already confirm that capital-raising is on the rise.”

Dan Shamgar and Alon Sahar, attorneys at Meitar Liquornik Geva Leshem Tal, a law firm that co-sponsored the report, said a volatile stock market and declining valuations for startups caused buyers to hesitate.

That, they said, created a gap between the price buyers were willing to offer and shareholders were willing to accept.

The largest M&A deal in the first half was an unusual tie-up between two publicly traded Israeli companies rather than an overseas company buying an Israeli startup, when Mellanox paid $811 million for EZchip.

IVC said the deal signaled a growing willingness by Israeli tech companies to grow and mature rather than sell out earlier to a big multinational. Nine M&A deals totaling $916 million were between Israeli companies while Israelis spent another $1.2 billion buying 21 foreign companies, it said.

The next largest deal was a $643-million buyout of publicly traded Xura to the private equity fund Siris Capital, followed by the $430-million purchase of Ravello Systems by U.S. software giant Oracle.