Tech Exits Plummeted in 2016 as IPOs Dried Up

But PwC report’s author remains optimistic that tech industry doesn’t face a crisis.

High-tech workers in Israel.
Tomer Appelbaum

Israeli high-tech exits plunged 67% this year to just $3.5 billion, its lowest since 2010, as initial public offerings virtually evaporated, a report by the accounting firm PwC Israel released yesterday showed.

It also marked the second year of declining exits, both in money and deal terms, from a record of more than $14 billion in 2014.

But despite the dismal numbers, Rubi Suliman, leader of PwC Israel’s high-tech team, said he saw no signs of a crisis and termed the slump a break after two years of record exits. Buyers remain interested in Israeli startups, he said.

“Buyers need some time offline to reap as much benefit from the technologies and companies they already have, and then to check potential new technologies for investment,” Suliman said in a statement. “This year’s large buyers were significantly different than those we’ve seen last year,” he said, noting that in money terms, 87% of acquisitions in 2015 were not by those buying in 2016.

Exits are a key barometer of the health of the Israeli high-tech industry, which built on a constant flow of new startups and venture capital investment and exits to reward investors and entrepreneurs.

In contrast to the downturn in exits this year, investment in Israeli high-tech companies reached $4 billion in the first nine months of 2016 – the latest period for which figures are available – 27% more than the same time in 2015. But high-tech funding has been declining in the United States this year, which augers badly for Israel.

“There is a lot of money available for investment in Israeli high-tech. Israeli and foreign venture capital funds, strategic investors, angels and other investment groups are present in the market, with the ability to make significant investments, more than ever,” Suliman said.

In addition to the drop in exits in money terms, the number of deals also dropped off sharply, to just 55 exits in 2016 from 70 each in 2015 and 2014. The average value of each exit showed an ever sharper decline, to just $64 million from $153 million in 2015.

The report excluded the biggest exit of the year – the sale of the casino-software company Playtica to China’s Giant Interactive Group in 2016 for $4.4 billion, because the seller was the U.S. company Caesars. The sale of self-driving tech startup Otto to Uber, for $680 million, also wasn’t counted because it is incorporated in the U.S.

Only two Israeli high-tech companies conducted IPOs this year, down from eight in 2015 and 18 in 2014, PwC said. And the 2016 IPOs were tiny: one by trendIT, which raised $5.9 million in London, and the other by Vonetize, which raised $4.2 million inTel Aviv.

The top two merger and acquisition sales this year were Oracle’s $430 million acquisition of cloud-computing startup Ravello and the $400 million acquisition of media-technology company SintecMedia by Francisco Partners, according to PwC.

Suliman attributed the 2016 decline in exits in part to the small size of the Israeli tech industry, where annual numbers can vary considerably, based on the presence or absence of one of a handful of large exits.

But, he added, “There are more investing groups than there are groups hesitating to buy companies. In addition, the Chinese are going into high gear and I expect we’ll be seeing more acquisition from Chinese interest.”