According to the IVC Meitar exits report for H1 2017, Israeli high-tech exits total $1.95 billion in the first half of the year in 57 deals, a five-year low, both in terms of deal number and total amount. The report sums up the exits of Israeli high-tech companies in merger & acquisition deals and initial public offerings, as well as buyout deals, from 2012 to H1/2017. In the past 6 months, exits comprised 46 merger & acquisition (M&A) deals, seven initial public offerings (IPOs) and four buyouts, totalling $1.51 billion, $227 million, and $218 million, respectively.
The figure represents just 20% of 2016’s annual exit total ($B). One big caveat for this figure is that it excludes the Mobileye acquisition by Intel for over $15 billion, since this deal has not been finalised yet.
Partial reasons for the slowdown seem to be pinned on macro economic changes in the US taxation regime, or regulatory changes in China related to the right of businesses to spend capital outside the country. Adv. Alon Sahar, Partner at law firm Meitar Liquornik Geva Leshem Tal, stated in a press release:
“The current report, covering the first half of 2017, alongside the second half of 2016, indicate a clear trend – a decrease in the number of merger & acquisition deals, which requires an explanation. We believe that the possible change in taxation regime in United States forces American acquirers to rethink their capital management strategies, which greatly affects modelling the deals in process. The regulatory boundaries in China suspended significant activity by Chinese acquirers, or discouraged Israeli companies from negotiating with potential Chinese acquirers.”
Another explanation offered by Adv. Dan Shamgar, Partner at law firm Meitar Liquornik Geva Leshem Tal, is that prices are just too high for acquirers:
“We should take into account the noticeable growth in the volume of investments and the availability of capital for growth stages. The number of deals in which companies raise tens of millions in dollars in proceeds has never been higher. The increasing variety of investors supporting late stage companies and the capital volume which has been available to companies for growth purposes – are the largest ever.”
The hope is that the increase in growth capital, translates into bigger exits down the line as companies take longer to exit:
“Some claim this is the industry’s way to support more significant companies, and that the value creation will occur later. Although we took part in a number of significant M&A deal negotiations that were not carried out due to price gaps, we believe that there are more mature companies in Israel than ever. We may only hope that this fact will be translated into deals with higher prices than we have seen in the past.”
In addition, another hypothesis is that acquisitions slowed down due to new verticals being launched in the space of AR, VR, Robotics. These companies are just starting to grow, and haven’t reached maturity yet.
While Multinationals seemed to have slowed their pace of acquisitions in Israel, one of the major trends spotted, is that 40% of M&A deals were done locally, by other Israeli firms, reaching a total of $255 Million. 15 of such transactions took place in the first half of 2017, and the most prominent was Gett’s acquisition of Juno Labs for $200 million (the second largest deal in 2017 so far). However, the total sum of Israeli acquisitions by Israeli firms is still only 21% of 2016’s average annual amount.
Fundraising activity remains strong, with $910 Million raised by Israeli startups in 29 deals in the month of June alone. In the first half of 2017, Israeli startup fundraising reached a whooping $2.6 Billion, out of which $950 Million, or 37% of the total venture capital invested in the first half of 2017, was allocated to growth rounds, reflecting the maturity of Israeli tech companies.
It’s too early to tell if deal volume will pick up at the end of the year of wether these growth startups are aiming for IPOs later in the year.