Israeli High-tech Exits Soar in First Half to $5.3 Billion, Says Research Center

Deal-making looks on track to break record set in 2006 as Asian companies pile into market.

Bloomberg

Israel’s high-tech companies are in the fast lane, heading for exits at a pace that could break the 2006 record for mergers and acquisitions, the IVC Research Center said on Tuesday.

IVC, which tracks the high-tech and venture capital industry, said $5.29 billion worth of Israeli startups were acquired through merger and acquisition deals in the first half of the year, a figure close to 80% of the full-year totals in 2013 and 2014. Some 54 companies were sold for an average of $98 million, a 51% increase over the 2014 average, it said.

“The first half of 2015 featured robust M&A activity across the industry, and the second half is already looking promising, with a pipeline of meaningful transactions in the works,” said Dan Shamgar, whose law firm Meitar Liquornik Geva Leshem Tal co-sponsored the report.

“We are experiencing growth both in the number and variety of potential buyers showing interest in Israeli companies, and in the variety of target companies that are more mature and ambitious.”

Close to 25% of the first-half figure was due to a single deal – the $1.25 billion acquisition of Fundtech, an enterprise software company, by the Canadian fintech company D+H in April. Nevertheless, the first-half figure put 2015 in striking distance of meeting the $10.75 billion reached in 2006.

In contrast to last year, when the U.S. market for technology initial public offering was strong, this year IPO activity has been tiny. Of the $5.29 billion in exits, $4.98 billion were in M&A deals while only six companies went public for a combined value of $308 million. Last year, 16 companies took the IPO route and raised $2.1 billion, IVC said.

Nevertheless, IVC expressed optimism about IPOs, which many people in the industry prefer over M&A deals because it leaves the companies intact as independent businesses, rather than becoming research and development arms of the acquiring company, which is typically what happens in M&A deals.

IVC estimated that more than 20 Israeli startups are planning to go public this year and next, with three or four slated to take place by the end of this year for a total value of $500 million.

IVC CEO Koby Simana noted that the average size of an exit rose “significantly,” with 11 acquisitions exceeding $100 million each.

“Such high-value deals are clear evidence of the availability of more acquisition capital, as well as of the fact that more companies and investors have been working on growing companies longer, thus providing the market with more mature potential acquisitions, which receive better, higher valuations,” he said.

Simana added that increasingly, non-U.S. companies are buying Israeli startups, particularly companies from Asia. “Such players are bringing an influx of new capital and growing international interest, driving up company valuations even further,” he said.