Despite the war in Lebanon which scarred the start of the third quarter, the Israeli hi-tech industry posted its second best-ever quarter in terms of merger and acquisition (M&A) activities as $7.1 billion in deals were struck in the three-month period.
"This was certainly a summer to forget for many in Israel," said investment bank Leap Capital in its Israel Tech and Venture Capital third-quarter revenue."But from a business perspective, Q3 was a positive reminder of global investors' confidence in the economy and its ability to function during times of adversity."
The quarter was highlighted by HP's $4.5b. acquisition of Mercury Interactive and Sandisk's buyout of M-Systems for $1.5b. - both announced while the war was still raging, Leap noted.
In total, 16 deals were struck of which five were worth more than $100 million.
Leap also noted the appearance of "non-strategic financial acquirers" as a significant trend in the M&A market during the quarter and said it expects these types of firms to continue to make outright acquisitions of technology companies. Israeli companies will continue to be a part of this movement, it added.
For the first nine months of the year, Leap reported $10.8b. in M&A deals, of which $9.3b. were carried out by foreign acquirers and the remaining $1.5b. by Israelis. The peak year for Israeli tech mergers was in 2000 when $13.8b. in transactions were struck in the full year, while 2005 saw deals worth $12.1b. announced.
The war also failed to deter foreign venture capital investors as internationally-based firms led a majority of the larger local fundraising rounds in the three-month period. Leap said it expects this trend to continue in the coming quarters.
In total, the venture capital industry invested $370m. in Israeli hi-tech in 45 transactions with the life sciences industry taking 30% of the total, the communications market receiving 28% and software companies raising 26% of the total.
For the year so far, January through September, VCs invested more than $1.2b. in private Israeli tech through 138 transactions.
Continuing the trend of previous quarters, July to September was a weak period for public markets as less than $100m. was raised in IPOs and secondaries prompting Leap to ask whether "the IPO exit will make a comeback."
Its answer for now was "not in the foreseeable future," particularly for Israeli hi-tech as the slow public market activity was expected to continue.
"Most, if not all, VC-backed companies need to be built with a M&A exit in mind for the foreseeable future," the review said. "Fortunately, Israel remains one of the few places outside the US where many of the world's leading tech companies are comfortable making key acquisitions."
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