2015's crop of Israeli high-tech exits worth $9b

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VC-backed exits were the highest in ten years. IVC's Koby Simana: VC funds are becoming more patient.

There were 104 exits by Israeli high-tech companies in 2015, and these generated $9.02 billion in proceeds, according to figures released today from a survey by IVC Research Center in conjunction with the Meitar Liquornik Geva Leshem Tal law firm.

The number of exits was 10% down in comparison with 2014, but proceeds were up 16% to the highest level in the last three years. The number of exits in 2015 is in line with the 10-year average of 100 deals. The average exit deal was $87 million in 2015, up from the $62 million 10-year average.

The top three exits in 2015, each above $500 million, jointly accounted for 30% of the total exit proceeds. The $1.25 billion acquisition of Fundtech by D+H, an international fintech company, alone accounted for almost 14% of the total exit proceeds in 2015. The acquisition of Valtech by HeartWare followed, with $929 million, and Ex Libris's acquisition by ProQuest accounted for $500 million.

VC-backed exit deals broke records in 2015, when 52 VC-backed deals brought in a total of $4.98 billion - the highest in 10 years, bypassing even 2013’s $4.04 billion, which included Waze's $1.2 billion acquisition by Google. The record is a result of the combination of a large number of deals and the size of the average VC-backed exit. At 52 exits, the number is second only to the 57 VC-backed deals performed in 2006, and is 24% above the 10-year average of 42 VC-backed exits per year. The size of the average VC-backed deal reached nearly $96 million, 47% above the 10-year average and second only to the record set in 2013 - of $106 million.

IVC Research Center CEO Koby Simana said by way of explanation of the exceptional achievement, "The increase in the size of the average VC-backed exit has a lot to do with the patience and perseverance with which VC funds have been managing their Israeli portfolios lately. The VCs, many of whom have been successfully raising new funds in the past two years, have enough breathing room to patiently wait for portfolio companies to realize their full potential.

"One of the things our analysis revealed was that the average time to exit in VC-backed deals keeps climbing, reaching 9.5 years in 2015 - narrowly within the VC model timeline. The funds’ willingness to sit and wait for a portfolio company to mature enough for a substantial exit, seems to pay off, as the average deal and return on equity are climbing as well."

IPO exits slowed down in 2015, following an exceptional 2014. Eight Israeli high-tech IPOs accounted for $609 million, a mere 7% of the total exit proceeds in 2015, compared to 2014’s outstanding 27%. The number of deals was lower than expected, as many companies shelved their IPO plans after worldwide IPO markets in general, and Nasdaq in particular, no longer seemed to offer favorable conditions for initial public offerings.

Still, the top three IPOs of 2015 all exceeded $100 million in proceeds and accounted for 70% of the amount raised in IPOs during 2015. The top three IPOs were performed on Nasdaq. They were by Novocure ($165 million) and Chiasma ($117 million) in life sciences and SolarEdge ($145 million) in the cleantech sector.

On prospects for IPOs by Israeli companies, Meitar Liquornik Geva Leshem Tal partner Dan Shamgar said, "Throughout 2015, the American capital market was not particularly receptive for IPOs, therefore Nasdsaq IPOs were chosen as an alternative only by a small number of companies. Looking ahead, it seems the IPO market will remain mostly closed for most companies, at least in the first few months of 2016. The M&A market however will remain active. On the acquirers’ side, along with seasoned acquirers such as Microsoft we see a trend of new buyers joining the exit market in Israel. In the past year, such new players included conglomerates such as Infosys and Amazon, and we believe additional strategic players will perform acquisitions in order to establish their presence in Israel.”

In M&A deals, the trend is towards larger deals, with the number of deals below $50 million dropping while the number of larger deals increased. The size of the average M&A deal in all groups increased compared to previous years, further demonstrating that the increase in average deal size is not a statistical oddity, nor a result of a few extremely large deals - it reflects a real trend for M&A activity.

Israeli high-tech companies were also on the acquiring side of 30% percent of the M&As in 2015. Twenty-four Israeli or Israel-related high-tech companies chose to expand by directing some of their M&A funds locally, acquiring 26 Israeli high-tech companies, in so-called ‘two-sided Israeli high-tech deals’, for a total of $1.18 billion.

While the accepted terminology for exits includes the IPOs and strategic M&As, the report editors suggest another form of deal-making can provide investors with returns, while the company remains independent. Specifically, buyouts involving private equity investors provide an excellent opportunity for the existing shareholders to profitably liquidate some portfolio holdings. In total, seven Israeli high-tech buyouts were performed in 2015, totaling $1.18 billion, somewhat below the $1.74 billion generated by such deals in 2014.

Published by Globes [online], Israel business news - www.globes-online.com - on January 11, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

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