Size of High-tech Deals Shrank in 2012; What's in Store for 2013?

Israeli companies are beginning to purchase Israeli start-ups in the $30-50 million range, with a growing realization that some growth can occur through acquisitions.

The Israeli start-up company CrossRider was sold at the end of 2012.

It was not a huge transaction, but it served as an indicator of several trends which characterized the departing year. The company, which developed browser add-ons, was bought for $37 million by Teddy Sagi's Markets.

In addition to its founders, big winners were individual investors in CrossRider, who made a ten-fold profit on their investment in just 18 months. The scope of investment and the phenomenal profits, as well as the individual players involved, are characteristic of the dominant trends on the local start-up scene.

"In 2012, the new media industries took a giant leap forward, especially for lesser-known companies in digital media", says Oren Raviv, an analyst at the IDC research company. "This applies to their revenues and scope of activities, as well as to the interest generated among traditional investors such as foundations, where the big money lies."

Venture capital funds that shied away from such investments in the past now realize the potential hidden in such enterprises, and are starting to invest in toolbar and media companies.

For example Cedar has invested in StartApp, a company developing a tool to allow developers of Android applications to increase their revenue. This tool has already been installed on 150 million Smart phones across the world.

Nevertheless, risk venture funds will not look back on 2012 with any satisfaction. Despite some profitable deals such as the purchase of NDS by Cisco for $5 billion or the purchase of Retalix by NCR for $800 million, Israeli funds made smaller profits than in previous years.

The ten largest exit deals of 2012 showed a 15% drop in value compared to 2011 (excluding deals in the life sciences ).

According to IDC, the 10 largest exit deals in 2011 were all worth more than $100 million. Only seven of the 10 largest reached those amounts in 2012. Whereas the smallest deal in the top 10 in 2011 was worth $150 million, with the sale of MobileAccess, the smallest in 2012's top 10 was worth only $80 million, with the sale of Wanova to VMware.

Companies in the new media deal with a wide range of topics, including Internet and mobile phone applications, advertising applications, media purchases, toolbars and on-line commerce. These are all hot topics in the Israeli high-tech industry.

In 2012, as hardware and chip producers saw a fall in profits, new media enterprises did well. The growth did not all take place in exit deals. The largest deal in these areas was the purchase of Amobee, developing advertising applications for cellular phones, by SingTel from Singapore, for $321 million. Other deals were considerably smaller, such as the purchase of face.com by Facebook for $60-80 million.

Two interesting and novel acquisitions were made by Perion, which purchased SweetIM and CrossRider, purchased by Markets. The purchase of Israeli start-ups by Israeli companies is a new phenomenon, since the previous trend was to build on growth.

IDC has found that Israeli companies are beginning to make such purchases in the $30-50 million range, with a growing realization that some growth can occur through acquisitions.

Raviv expects Israeli investors to continue to invest in new media companies at their early stages, although a slowdown in the economy may limit this. Larger companies will probably opt for exit deals by putting themselves up for sale. He anticipates a move from companies developing applications to companies focusing on monetization, improving revenues for content developers

Bloomberg