The local high tech industry in Israel continues to provide exits for investors mainly through the M&A route, while the rest of the world struggles with IPOs. According to a recent study published by IVC Online, Israeli high tech M&A deals were valued at $3.2 billion in 2007, spanning across 75 deals, the second highest number of deals in a single year. The dollar amount for 2007 is still 67% lower than that of 2006, an unusually high of $10 billion, but only the third highest amount since 2000.
Israeli companies were also on the acquiring side, spending $2.15 billion on approximately 60 M&A deals in 2007. 33% of the deals consisted of acquisitions of other Israeli companies and the rest were acquisitions of foreign companies.
There are many reasons that make Israeli companies attractive targets for acquisition:
– Cheap cost of labor – Like India, Israel is (or used to be) a great outsourcing destination. Research and development offices as well as support centers are cheaper to maintain in Israel rather than the US/ Western Europe. (I’m not sure about the validity of this factor with the current growth rate of the NIS vs the Dollar)
– Time Zone – Israel is strategically located in the Middle East, making it convenient to support Europe, Asia and the Americas.
– Talent Pool – Israel has the highest numbers of engineers per capita, which makes it very easy to maintain and grow a local team.
It’s no surprise then, that in the past 2-3 weeks Israeli companies are getting snatched by major international corporations.
Below is a short list of recent Israeli M&A Deals:
Last Thursday, Microsoft acquired US-based online travel website Farecast for $115 million. The company, which provides predictions on airline tickets based on historical data, was founded by Prof. Oren Etzioni, a lecturer in computer science at the University of Washington in Seattle, and a serial entrepreneur. Etzioni told Globes that the talks with MSFT lasted three months, and that Microsoft beat a large player in the travel industry in the bid for Farecast. To date, FareCast had raised $20.6 million in three rounds led by Greylock, Madrona Venture Group, PAR Capital Management, Pinnacle Ventures, Sutter Hill Ventures and WRF Capital. Farecast recently expanded to include hotel price predictions and its services are already integrated in the MSN portals. Farecast also offers guaranteed prices for a fee. Etzioni will not continue to be involved with the company. Exact deal terms were not disclosed, but Seattle PI, who first broke the rumor, put a price tag of $115 million.
Last week IBM announced the acquisition of Diligent Technologies, a privately held storage “de-duplication” technology company, based in Massachusetts and Israel (R&D). Diligent’s technology helps organizations significantly reduce the amount and cost of physical storage required in data centers. Founded in 2002, Diligent is led by Chairman and CEO Doron Kempel, who previously served as VP and GM for the Media Solutions Group at EMC Corporation. The company has raised $50 million to date, and its investors include Accel Partners, Gemini Israel Funds, Eastward Capital Partners, and Matrix Partners. I agree with Danny Cohen of Gemini who wrote on his blog:
IBM acquired 3 Israeli storage companies in the past few months. They are basically creating a large scale storage play out of Israel. Will be interesting to see if this trend continues in 2H 2008 and in 2009.
IBM continues its romance with Israeli high tech companies. After snatching XIV storage and partnering with several Israeli startups (Siverge and Ctrue), on April 10th IBM announced the acquisition of FilesX, a privately held storage software company based in Massachusetts and Israel, specializes in continuous data protection and nearly instant data and application recovery software for enterprises and remote/branch offices. With its patented technology, FilesX helps IT staff restore data from virtually any type of failure and from nearly any point in time. IBM plans to integrate FilesX’s enterprise-level continuous data protection applications into its Tivoli Storage Manager family of products which includes Tivoli Continuous Data Protection for Files. The financial terms of the deal weren’t disclosed but Globes estimates it to be in the range of 70 to 90 million dollars. To date, FilesX raised $20 million from Benchmark Capital, Genesis Partners, and Index Ventures.
BeInSync, an Israeli startup that provides software for the synchronization of files across computers and access them while on the road, has been acquired by Phoenix Technologies for an undisclosed amount. Techcrunch estimates the deal to be valued at $25 million. Israeli blog the.co.ils was the first to report on the deal. Tel Aviv based BelSync was founded in 2003 by three serial entrepreneurs – Tal Barnoach (former founder of Orca Interactive), Sharon Carmel (co founder of Emblaze), and Adi Ruppin (one of the founders of SofaWare). The Company had raised $8 million to date, in two rounds led by Alta Berkeley Venture Partners, Aviv Venture Capital Fund, and Eurofund. This is the first Israeli acquisition for Phoenix Technologies, which is publicly traded in Nasdaq with a value of $430 million. The official press release can be found here.
RichFX Salvaged By Channel Advisor For $3.1M After It Blew Through $60M
This is a good example of a yard sale. RichFX worked with the largest clients, but wasn’t able to sustain the growth (or it’s original capital, raised by Plenus, an Israeli venture lending bank). RichFX had a few incarnations in terms of its business model, and it had previously filed for chapter 11. RichFX currently hosts rich media assets, primarily for ecommerce companies. The buyer, Channel Advisor has over $50 million in funding. Founded in 1998, RichFX had once reached 130 employees and was bank-rolled by 18 firms, including Yossi Vardi.
IBM Buys Sweeden’s Telelogic for $845 million
Why did it make the list? Because Telelogic’s R&D center is based in Rehovot, Israel due to the acquisition of i-Logix in 2006. The Israeli office of Telelogic has 50 employees, who will be joining IBM’s innovation center in Israel, under the management of Danny Yalin. IBM’s software development office in Israel has grown significantly in the recent years, thanks to the acquisition of a few Israeli companies including: iPhrase ,Unicorn and WatchFire. Telelogic will enable IBM’s clients to increase efficiency and speed in highly complex products, including the development of radars and satellites.
Veteran Kibbutz semiconductor company buys Israeli start-up
Semiconductor equipment maker Ricor Cryogenic and Vacuum Systems Ltd has acquired Israeli start-up Innersense Ltd., which has developed smart wafer technology. The deal terms were undisclosed, but “Globes” estimated that it totaled a few million dollars.
Innersense’s patented miniature sensor technology is used for monitoring and troubleshooting wafer handling equipment for the semiconductor industry – see a company presentation here. The company’s founders are its only investors, except for a grant from the Office of the Chief Scientist. Innersense is led by co-CEO Erez Harel.
Bede X-Ray Metrology has been taken over by Israel-based Jordan Valley Semiconductor effective as of April 14th, 2008. Bede, a supplier of HRXRD metrology for the semiconductor industry, entered into the Administration phase at the end of March and its assets have now been taken over by Jordan Valley. Insolvency administrators have been appointed to oversee the company’s finances, and it is not expected that the administration will result in any return to equity shareholders. Bede first announced that it was involved in preliminary takeover talks in July 2007.
Israeli company Koor Industries has expressed interest in acquiring a minority holding in CDMA service provider Tata Teleservices (TTSL). TTSL, however, refused to comment on this speculation. The company has sent a non-binding letter of intent (LoI) expressing its interest to invest $577 million (about Rs 2,300 crore) in TTSL. Koor Industries is a holding company with interests in agrochemicals, defense electronics, venture capital and telecommunication. It has a 61 per cent holding in Telrad Networks (a global telecom equipment and services organisation) and 21 per cent holding in ECtel (a solutions provider).
A day after the BeInSync was sold, GE Healthcare announced the acquisition of Versamed, formerly known as Airway Medical Equipment, for $42 million. VersaMed was founded in 1995 and it develops software-intensive ventilators. According to IVC Online, Versamed has raised $17.5 million to date from several investors, among them Aura Investments Ltd., TechnoPlus Ventures, FIBI Investment House Ltd., Forum Technologies Ltd., Technorov Holdings, Tripod Investments, and Wheatley Partners.
This is the third part of the Golden Age of Israeli Startups. You might be interested to explore:
- The Golden Age? Israeli Startups Experience Funding Streak (Part I)
- The Golden Age of Israeli Startups: Money, Money Money (Part II)