2014 a Record Year of Exits for Israeli Startups

PwC estimates companies raised $15 billion from going public and being acquired.

Zef Nikolla

Israeli high-tech-company exits reached a record of close to $15 billion this year, double 2013’s $7.6 billion, the accounting firm PwC said in a Tuesday report.

Israel tech companies raised $9.8 billion through 18 initial public offerings, up from just $1.2 billion the year before.

Mobileye, the maker of anti-collision technology, accounted for $890 million of the 2014 total with its Wall Street IPO in August, the largest-ever IPO of an Israel company, PwC said.

Meanwhile, some $5 billion of tech startups were bought in mergers-and-acquisitions deals, down from $6.45 billion the year before, PwC said, with one day left in 2014.

“Over the past year the stars were aligned perfectly for Israel high tech,” PwC said, adding that 2014 “is by a wide margin a record year of Israel high tech.”

The report cited the big surge in technology stocks in the U.S. and Britain, which lifted the valuations that Israeli tech companies could get through an IPO.

The turn to IPOs follows three years of giant M&A deals, the best known of which was the sale of the navigation app company Waze to Google for close to $1 billion.

Building big

But PwC also said the transition to IPOs as the preferred exit reflected the growing maturity of the Israeli tech industry and the investors who finance it. Israeli entrepreneurs are now willing and able to build global companies.

“Companies that in the past were able to sell themselves and earn big returns for investors are going to the end with a share offering and building big companies,” said Rubi Suliman, head of the firm’s high-tech practice.

Critics of Israeli high tech say the economy is not earning the full benefits of its acknowledged technology and innovation prowess because startups typically sell themselves to multinationals before they have a chance to build their businesses.

Last week Dow Jones VentureSource said Israeli venture-backed companies took an average of 3.95 years from first round of funding to acquisition, much less time than their European peers. And the time to exit is shortening from an average of 8.59 years in 2009.

A strong, if not record, 2015

The decline in M&A did not signal any weakness in Israeli high tech but rather a preference for IPOs, Suliman said. Data showed that 52 Israeli startups were sold in M&A deals this year, up from 39 in 2014, while the size of the average deal dropped to $97 million from $165 million.

Suliman said Israel’s startups were unlikely to set another record for exits in 2015, but the year should be strong.

“We still don’t see any end to the current wave of IPOs,” he said.

“There is no small number of companies with the ability and appetite to go public and become the leaders in their industries,” he said. “Likewise the appetite of [multinational] corporations for mergers and acquisitions remains high and we will see their activities in this remain higher than usual.”

Suliman said that over the long term Israeli startups would face increased competition from Asia and even Europe and emerging Silicon Valleys. He urged Israeli policy makers to invest more in education to ensure Israel keeps its competitive edge.