Israel’s venture capital industry had its best year in a decade in 2013, as VC-backed tech companies raised $4.2 billion in merger and acquisition deals or initial public offerings. That, according to a report published Monday by IVC Research Center.
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But in spite of a slew of headline-grabbing mergers and acquisitions, led by Google’s nearly $1 billion purchase of Waze, the total amount raised in high-tech exits fell to $6.64 billion in 2013, from $9.66 billion in 2012. That was the year Cisco purchased NDS for $5 billion.
The amount of the average Israeli tech exit soared in the past three years, not as a result of giant Waze-size deals but rather because smaller exits have nearly disappeared, said IVC Research Center CEO Koby Simana.
“Between 2004 and 2010, the average exit deal remained consistently in the $30 million to $40 million range. A breakout in 2011 saw average deal size jump to $52.3 million, and it continued to rise to $83 million in 2013. According to our analysis, the number of exits above $100 million did not increase – despite common misconception – nor did higher deal valuations have a major impact on average deal size. Higher average deal size mainly reflected a dramatic decline in the number of small deals below $10 million,” Simana said.
Israeli startups have benefited from a global rise in valuations for technology firms, as seen in the record share prices of industry leaders such as Facebook and Twitter. That has increased the appetite of VC funds and other investors for startups, although critics have warned that the tech sector may be heading for another bubble.
IVC put the total value of Israeli tech exits in the last decade at $50 billion. During that period, 803 Israeli technology companies were acquired by or merged with other companies, while another 107 raised money in IPOs, according to IVC. But the number of exits has not grown since 2008, falling to 80 in 2013, from 81 in 2012.
IVC noted that venture capital funds played an important role in the size of exits, with 35 of the deals by VC-backed companies generating 63% of the total amount raised in exits in 2013. While the average exit transaction last year reached $83 million, 51% above the $55 million 10-year average, VC-backed exits fared even better, with an average deal of $120 million.
Last year was the strongest for VC-backed exits in a decade, with the proceeds 91% higher than the 10-year $2.2 billion average. That raised their equity return ratio in 2013 to 5.3, compared to a 10-year average of 2.91.
According to IVC Research Manager Marianna Shapira, two third of all the biggest exits – those between $100 million and $1 billion – were backed by venture capital funds. Nevertheless, she said, VC support has not succeeded in bringing in deals above $1 billion until now.
“There were only three deals that exceeded a billion dollars in the past 10 years – the acquisitions of Mercury [Interactive] and M-Systems in 2006, and the NDS acquisition in 2012,” Shapira said.