A worker tends to systems in the back of a Mobileye autonomous driving test vehicle, at the Mobileye headquarters in Jerusalem, May 15, 2018.
(photo credit: RONEN ZVULUN/REUTERS)
The maturing Israeli hi-tech industry registered a significant decrease in the number of “exits” in 2018, according to IVC-Meitar’s annual Exit Report published on Tuesday.
The number of exits – IPOs, mergers and acquisitions, and private-equity buyouts – declined markedly from 133 in 2017 to 103 in 2018, with a total exit value reaching $12.63 billion. Much of this is due to four “mega-deals” exceeding $1 billion, accounting for approximately 65% of the total exit value.
Notable decreases were identified in mergers and acquisitions, which had remained relatively stable since 2014, but decreased last year by 20% compared to 2017. This reduction was largely attributed to deals not exceeding $20 million.
A considerable decrease in private-equity buyouts was also identified, 22 deals were made in 2018 compared to 40 in 2017. The reduction in the aggregate value of such deals was significant though more moderate, decreasing from $765 million to $578 million.
“The aggregate value of the exits in 2018 was significant, approximately $12.63 billion,” said Shira Azran, a partner at the international law firm Meitar Liquornik Geva Leshem Tal & Co.
“A closer look at the data reveals mixed trends. On one hand, four exits exceeded $1 billion and these deals have become part of the industry. On the other hand, during 2018 we saw a decrease in the number of exits of private companies between $250 million and $1 billion.”
Excluding “mega-deals” or transactions exceeding $1 billion, were made by Synamedia, Mazor Robotics, Imperva and, subject to closing, Orbotech, making the total exit value in 2018 stand at $4.53 billion – the lowest since 2014.
A probable explanation for this decrease in number but overall increase in value of Israeli exits is that the local hi-tech ecosystem is following a global trend of maturation, with larger amounts being invested in growth rather than in early-stage companies.
“This trend, in addition to the consolidation of buyers, leads us to believe that in order to realize significant exit value, buyers will be looking mainly for companies whose acquisition will lead to a significant impact on their activity,” said Azran.
“For certain companies this may mean that their right course of action will be to consolidate resources, thereby enabling a more significant fingerprint that will appeal to international buyers.”
While the number of capital investments in Israeli start-ups decreased slightly from 661 in 2017 to 623 in 2018, the total value invested reached a record high of $6.47 billion in 2018 – a 17% increase compared to the $5.5 billion that was raised the previous year.
The number of companies raising in excess of $30 million in funding has grown consistently since 2014, including a 50% increase from 41 deals in 2017 to 62 in 2018. At the other end of the spectrum, investments of less than $5 million decreased from 400 in 2017 to 352 in 2018.
“The Israeli start-up landscape in 2018 took another step in the global direction of more money funneled into less deals,” said Benzi Segev, CEO of the IVC Research Center.
“This pattern was noted on both sides of the tech deal activity – M&A and funding. Looking 12 to 18 months ahead, the fundamentals for long term growth already exist – amounts and numbers of large investments are on the rise, but it remains to be seen if the local scene could use these resources to grow.”
Regarding sector trends, the IT and enterprise software sector continued to provide the greatest number of exits in 2018 (35), though there was a notable increase in the number of life-science exits (24) and a similarly significant decrease in deals in the Internet sector.
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