Technology to continue M&A roll

Initial public offerings to take back seat in funding.

tech biz feature 88 (photo credit:)
tech biz feature 88
(photo credit: )
Mergers and acquisitions are expected to once again lead the way in fundraising for Israeli technology companies in 2006, building on the record 39 transactions completed in 2005. Technology companies raised $12.1 billion last year through M&A activity, showing a rise of 600% from 2004, according to Investment bank Leap Capital's review of the sector released Tuesday. "Investors are attracted to the immediate returns which M&A's bring, and this will continue to be their choice method of exit," said Gerald Segal, managing director of Leap. "Israel remains a very attractive M&A market in technology and we see this in the big international companies which made purchases there." Large international corporations including Intel, Cisco, eBay, Kodak, HP, Agere, McKesson, Alcatel, Juniper, RSA Security and Broadcom all bought into Israeli tech in 2005. Half of the acquiring companies were Israeli, the report noted. As could be expected, M&A outsold initial public offerings in activity, despite a 100% rise in the number of companies going public. A trend Segal said would continue into 2006. One reason for this, he added, is that the criteria for going public are still high. "Even the [traditionally less stringent] Alternative Investment Market (AIM) in London has raised the requirements for IPOs," Segal said. Of the 14 technology companies that completed IPOs in 2005, seven listed on the AIM, six on the Nasdaq, and the remaining company listed on the Singapore exchange bringing the total funds raised to $557m. While the resulting funding was only a slight increase over the 2004 level, it was a far cry from the $1.33 billion raised from IPOs in the hi-tech bubble year 2000. While the local companies noticeably avoided their home market, Segal said this was to be expected given the higher valuations abroad and the tendency to be near to where most investors are located. While the year marked the first time that the AIM exchange exceeded the Nasdaq in Israeli tech IPOs, Leap was cautious about the London market as a suitable exit alternative for Israeli hi-tech, given the performance of those companies listed there. The first five companies to list in 2005 on AIM were down an average 23% from their issue price (the other two IPOs were completed in December), despite the exchange as a whole rising 4% for the year, the report said. Other highlights of the report showed an increase in the participation of foreign venture capital firms in Israel and a total VC investment of $890m., spread between 99 private technology companies.