Hi-tech M&A activity down last year

63 local hi-tech and pharmaceutical companies acquired or merged in 2009, down 28% from average of 87 companies in previous 3 years.

By SHARON WROBEL
March 23, 2010 14:16
2 minute read.
Teva Pharmaceutical Industries.

Teva Pharmaceutical Industries. . (photo credit: Ariel Jerozolimski)

 
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The number of mergers and acquisitions involving Israeli hi-tech and pharmaceutical companies fell to a five-year low in 2009, but the average size of the deals increased 21 percent, the Israel Venture Capital Research Center reported Monday.

Sixty-three local hi-tech and pharmaceutical companies were acquired or merged in 2009, down 28% from an average of 87 companies in the previous three years (82 in 2008, 87 in 2007 and 94 in 2006).

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Last year had the fewest M&A deals since 2004, when 62 local companies were acquired or merged. However, the average deal size in 2009 was $40 million, up 21% from $33m. in 2008.

There were 28 VC-backed deals at a total value of $1.55 billion, up 3% compared to 35 deals totaling $1.5b. in 2008.

“Notwithstanding the increase in average deal size, 2009 was successful for buyers due to a sharp decrease in company valuations,” IVC CEO Koby Simana said in the report. “Moreover, we expect considerable M&A activity in 2010, providing attractive deals for companies eager to capitalize on the many current opportunities. From the standpoint of investors in hi-tech companies, M&A deals will be welcome, even at moderate valuations, to receive an immediate payback.”

Teva Pharmaceuticals Industries Ltd. started the acquisition spree in 2010 with this month’s announcement of the purchase of German generic-drug company Ratiopharm for €3.625b.

Last year, M&A proceeds involving Israeli hi-tech and pharmaceutical companies totaled $2.54b., down 7% from 2008 ($2.74b.) and 33% lower than 2007 ($3.79b).

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The top-10 deals in 2009 were worth $2.02b., 80% of the total for the year. Four deals exceeded $200m., and five were for more than $100m.

The most noteworthy M&A deals of 2009 were Siemens’s acquisition of Solel ($418m.), Medtronic’s purchase of Ventor ($325m) and IBM’s takeover of Guardium ($225m.).

The number of transactions by Israeli companies involving acquisitions of foreign companies more than halved last year. In 2009, 15 deals were completed by local companies for a total of $380m., down from the 39 deals in 2008 that were worth $9.5b., including Teva’s acquisition of Barr Pharmaceuticals for $7.46b.

The most active buyer among Israeli companies in 2009 was Frutarom Industries, a producer of flavors and fine ingredients, which acquired three foreign companies for a total of $37m.

Israeli IPO activity was influenced by worldwide technology IPO markets, which were weak in 2009, as in 2008. Only one IPO was made by an Israeli hi-tech company during 2009. D-Pharm, a clinical-stage biopharmaceutical company, raised $22m. on the Tel Aviv Stock Exchange. No IPOs were made in 2008.

Over the last decade, hi-tech companies raised about $17b. from investors, compared to more than $48b. of capital received through M&A or IPO exits.

Dan Margalit, managing partner at accounting and consulting firm BDO Ziv Haft, expects Israeli companies to return to the IPO market in the US this year.

“In 2010, we expect 10 to 15 public offerings by Israeli companies to make it on the US market,” he said Monday at a hi-tech conference in Tel Aviv. “Naturally the volume of offerings will be in the smaller range of $30 million to $70 million for Israeli companies with a valuation of $100 million to $300 million.”

This year, initial public offerings in the US are expected to increase by 25% over 2009, according to a BDO survey conducted among 100 global capital-market managers and investment houses.

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