After the peak years for exits in Israel’s high-tech industry, 2015 and 2014, there has been a dramatic drop in 2016, according to Rubi Suliman, Technology Leader in the Israeli branch of PricewaterhouseCoopers (PwC), a multinational professional services network headquartered in London.
According to PwC’s annual report of exits Israel, in 2016, the total amount of exits in Israel’s high-tech industry (acquisitions and IPOs) amounted to $ 3.5 billion, reflecting a drop of 67% compared with the $10.69 billion total exits in 2015. According to the report, in 2016 there were 55 exits, compared with 70 exits each in 2014-15. The average exit transaction in 2016 was $ 64 million, compared with $153 million in 2015.
In 2016, there were two IPOs of technology companies, a significant drop from eight in 2015 and 18 in 2014.
The amount of transactions in 2016 (53) was similar to that of 2014 (52). However, the average transaction amount in 2016 was $66 million, compared with $97 million in 2014.
The report also shows that 2016 saw an almost complete halt of first offerings of high-tech companies, Compared to $3.4 billion value of issuances in 2015.
“On its face it appears that it has been a drought year in terms of exists and that we’ve hit a crisis of sorts,” Suliman wrote, “but the truth is not nearly so dramatic.” He insists that “we are not experiencing a crisis, certainly not a crisis of the magnitude of 2000 and 2008. There is no apparent reason for the drop in the number of exits, and, in fact, the slowdown has been mainly in the giant transactions of recent years. To illustrate, the 10 major transactions in 2016 amounted to $2.5 billion, compared to 4.6 billion in 2015.”
According to Suliman’s analysis, “The buyers are still out there in the Israeli market, and some have even increased their presence. Interest rates are still low and the existing investment alternatives have not changed. Since the reservoir of potential investors has remained more or less the same, it is natural that after the waves of acquisitions in recent years there would be a certain lull among some buyers, for the purpose of exploiting and maximizing the technologies and companies that have already been purchased, and to examine investment in new technologies.”
The major buyers this year, according to Suliman, “are significantly different from those in the previous year, supporting the theory that the big buyers of 2014-15 have taken a time out. In financial terms, 87% of the purchases in 2015 were not made by buyers who purchased in 2016.”
“This year, major acquisitions were made by Oracle, Sony, Cisco, Dentsply Sirona, and Francisco Partners,” Suliman wrote, noting that “the latter is the only one to have made a significant acquisition last year as well, and the only one whose purchases are not strategic but financial.”
“There’s lots of good news, too,” Suliman concluded. “There’s a lot of money available for investment in Israel’s high-tech. Israeli and foreign venture capital funds, strategic investors, angel investors, and other investment entities are present in the market with significant investment capabilities, likely more than ever before.”
“Hi-tech companies which are engaged in building long-term value will certainly will face a tsunami of acquisitions in a little while,” Suliman promised, “a time best to arrive at ripe for creating value and innovation.”