Thanks to Last-minute Intel Deal, Israeli Tech Exits Doubled in 2019

Sales and IPOs reached $9.9 billion, capping decade total of $70.8 billion

An Intel logo is seen at the company's offices in Petah Tikva near Tel Aviv, July 25, 2018.
Nir Elias / REUTERS

After three relatively dry years, Israeli tech companies enjoyed a boom in exits in 2019, as companies were sold or went public in transactions with $9.9 billion, according to a report released Tuesday by PricewaterhouseCoopers.

It was still far short of the 2014 and 2015 peaks of more than $10.5 billion, but the figure was 1.5-3 times the level of the preceding three years and more than double the 2018 total. This year also set a record for total exits, which reached 80, versus an average of 70 over the last decade, PwC said.

This year’s total was given a last-minute boost by of Habana Labs, a maker of artificial intelligence chips that was acquired by Intel last week for $2 billion in cash. It was the biggest high-tech deal completed this year.

The PwC figure didn’t count transactions for companies that were previously acquired or brought public, such as chip designer Mellanox, which is in the process of being bought by Nvidia for $6.9 billion. Including those secondary deals would have boosted the 2019 total to $22.9 billion, the accounting and consulting firm said.

The 2019 figures capped a decade of exits that totaled $70.8 billion for the Israeli high-tech industry over 587 transactions.

10 years.

That decade figure also excludes secondary transactions, most notably the sale of the automotive technology company Mobileye to Intel in 2017 for $15.3 billion. Adding secondary sales like that, the decade total reached $107.8 billion, PwC said.

The sale of Habana Labs, which was founded by Avigdor Willenz, deal puts a spotlight on the role of so-called unicorns, startups with valuations of $1 billion or more.

Yaron Weizenbluth, high-tech partner at PwC Israel, said the number of unicorns in Israel had increased over the decade, in part because Israeli entrepreneurs are willing to wait longer before selling their companies than counterparts in other countries.

In that context, Weizenbluth mentioned the secondary sales of shares in companies such as Iron Source, which sold a 25% stake in itself to the CVC private equity fund; Monday.com’s $150 million fundraiser and WalkMe’s $40 million fundraiser this year. All of them were done at valuations of well over $1 billion.

As to whether the trend will change, Weizenbluth said he saw some worrying trends.

“As we enter a new decade, it does not feel like the boom is about to end,” he said. “On the other hand, we must not overlook the fact that the very high valuations of tech firms raise doubts. This is coupled by a trend whose impact is not fully known at this time of a worrying drop in funding raised by early-stage startups.”

Mergers and acquisitions continued to dominate the exit scene, with initial public offerings accounting for just 22% of all exits, or a total of $2.2 billion via 13 IPOs, the PwC report said. Still, that was up sharply from the 2018 total of $888 million in nine IPOs.

The biggest of 2019 was by the online freelancer marketplace Fiverr, which went public in June at a $650 million valuation and today trades at a 10% higher valuation.

The other two big IPOs were Tufin, a cybersecurity company, and InMode, a maker of medical electronics. Tufin conducted an IPO in April at a $450 million valuation and today is worth 30% more while InMode went public at $450 million in August and trades today at $1.3 billion.

Another 10 Israeli companies registered for trading at overseas stock exchanges either via an IPO or by buying a publicly listed shell company.

On the M&A side, after Habana Labs, the most prominent exits of the year were the acquisition of Demisto for $560 million and Twistlock for $410 million, both cybersecurity startups bought by the U.S. company Palo Alto Networks.

Other big transactions were the $350 million purchase of Samanage (enterprise software) by SolarWinds, and the $300 million acquisition of Dynamic Yield (online marketing) by McDonald’s.

Weizenbluth said the purchase of Dynamic Yield by McDonald’s, which is using the startup’s technology to personalize customer interactions, is part of a growing trend of nontech companies seeking to tap Israeli innovation.

In terms of buyers, the PwC survey showed that American companies remain the main buyers for Israeli tech companies: They accounted for 48 of the deals this year and $8.8 billion of the acquisitions by dollars, or 90% of the total.

European acquisitions accounted for just 4% of the total and Asian buying just 3%, despite high hopes that Chinese companies would become major players in the Israeli market.

Canadian and Australian companies each accounted for 1% and Israeli companies buying other Israeli companies another 2% over 11 deals.