The 2023 Exit Report by PwC Israel, released today, paints a gloomy picture of the technology industry in Israel. The report covers acquisitions and IPOs of Israeli technology companies from the beginning of the year to December 3.
According to the report, the aggregate value of acquisitions and IPOs fell by 56%, from $16.8 billion in 2022 to $7.5 billion this year. In comparison with 2021, which was a peak year, the decline is 91%.
Deal numbers have also fallen, by 45%, from 72 in 2022 to 45 in 2023. The average deal size fell from $235 million to $167 million.
"At the moment, what’s happening is an event within an event," PwC Israel partner Yaron Weizenbluth, who heads the firm’s Assurance and High-Tech cluster, told "Globes". "There’s the global financial crisis that began in the first quarter of last year with the Russian invasion of Ukraine. There’s the local constitutional crisis, which there is no doubt caused a shock and was a very significant factor in slowing the local industry - this is a crisis that really hit the soft underbelly of the local high-tech industry. And then came the war, and it’s a long war, and we don’t yet know to what extent Israel, with its small economy, can sustain such a long war at such intensity.
"We looked quarter by quarter and saw that without doubt the global crisis represented the opening shot for a cooling of the high-tech market, but whereas Israel was able to cope with past crises, to get though them in reasonable shape and emerge from them quickly, what we are seeing here is that we are at the end of the seventh quarter and the beginning of the eighth in which there has been a very significant decline in deal numbers, and that’s a very worrying situation."
According to the report, cybersecurity was the leading segment, recording the largest number of deals in 2023, with an aggregate value of $4.2 billion.
Among the most prominent deals are the acquisition of Talon by Palo Alto Networks, the acquisition of Axis by HPE, and the acquisition of Perimeter 81 by Check Point. There were also six deals in the Internet segment, amounting to $2.3 billion in aggregate (of which the Oddity IPO accounts for $1.9 billion).
"Cyber deals saved the situation, but you have to look at it critically," Weizenbluth says. "Out of the 45 deals this year, 19 had some connection to cyber, with a cumulative value of $3.8 billion, and 51% of the total deal value. Another interesting fact is that among the 12 deals with a value of more than $200 million, no less than 10 came from that segment. If you further exclude the two most significant IPOs this year - Oddity (IL Makiage) and Freightos - cyber accounts for 100% of all deals over $200 million.
"On the one hand, you can say that this is very lucky, especially as some of the buying companies are Israeli, which shows continuity and resilience in the major Israeli companies like Palo Alto and Check Point, which continue to base their strategies on acquisitions. But on the other hand, we don’t know whether, as a result of the crisis, the acquired companies didn’t to some degree compromise on price.
"In other words, in another world or at another time, it's possible that these deals would have been carried out at far higher amounts. At the same time, we also do not want to be in a situation where our entire high-tech market is based on one specialization. Cybersecurity has always been a dominant industry, but this year it has reached the point where there is only cybersecurity. It is true that when the water level drops, you stick with the anchor sectors, but looking ahead, we want cybersecurity but not just it."
60% of deals were with the US
The PwC report also found that in 2023 only one exit deal exceeded the $1 billion threshold and that was the $1.9 billion Oddity IPO. In 2022 and 2021 there were two and 21 such deals, respectively, all of which were Wall Street IPOs over $1 billion. In 2023 there were three major deals worth a combined $3.1 billion compared with six major deals in 2022 worth a combined $11.9 billion.
In 2023, there were 14 deals between $100 million and $500 million, for an overall amount of $3.4 billion, of which nine of the deals were in cybersecurity. In 2022, there were 17 deals in this range. In 2023, as in 2022, the biggest amount of deals was in the $10 million - $50 million range, comprising about 40% of the overall number of deals this year and 53% of deals last year.
Despite the worrying situation depicted by the report, it ends on an optimistic note stressing that Israeli deals still continue to be completed, even in the current challenging macroeconomic environment. The US was and still is the most significant in terms of buyers, with 27 deals representing roughly 60% of the total number of deals. This compared to last year, in which 39 deals were carried out, representing 54% of the total number of deals. Also, 11 "blue and white" (all-Israel) deals were recorded this year which make up about 24% of the total number of transactions, compared with 2022 in which 23 "blue and white" deals were recorded, making up about 33% of the total number of deals.
Published by Globes, Israel business news - en.globes.co.il - on December 6, 2023.
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