The sale of big data connectivity chipmaker Mellanox Technologies Ltd. (Nasdaq:MLNX) to Nvidia for $6.9 billion earlier this month has rekindled the question about whether Israel will ever be able to spawn a tech giant. The question is particularly poignant because Mellanox founder and CEO Eyal Waldman was always a prominent proponent of the notion that Israeli entrepreneurs should not be seeking exits but rather growing their companies.
In 1994, Waldman cofounded Galileo Technologies, which produced computer switches and hubs but left in 1999, after a high profile falling out with his fellow founders who wanted to sell the company, while he wanted to grow it. Galileo was sold a year later to Marvell for $2.8 billion.
Waldman set up Mellanox and over the years turned down many offers to buy the company. He was also frequently on record as saying that he saw no reason why Israel would not one day be able to produce a tech giant like Google, Facebook or Intel.
To be fair, Waldman never claimed that Mellanox could be a tech giant but there was an assumption that the company from Yokneam would remain independent. Whether it was because Mellanox's technology was too niche, or Waldman's vision was too narrow and not aggressive enough in the mergers and acquisitions market, or he simply grew a little bit older and threw in the towel, Mellanox will not be Israel's tech giant holy grail.
Mellanox is the latest major Israeli tech company to be sold in the past two years. Car sensor developer Mobileye was acquired by Intel for $15.3 billion two years ago. Drug developer Neuroderm (sold for $1.1 billion), surgical robot producer Mazor ($1.4 billion), and automated optical inspection equipment company Orbotech $3.4 billion) have all been sold as have innovative but not strictly technological companies like flavor and fragrances developer Frutarom ($7.1 billion) and home carbonated drinks company SodaStream ($3.2 billion).
But there are still plenty of very valuable Israeli companies that have remained independent.
Israel's most valuable tech company is Check Point Software Technologies Ltd. (Nasdaq: CHKP) worth close to $20 billion. Founded in 1993, Check Point is one of the pioneers of IT security, known today as cybersecurity. If there is an area where Israel is ever going to develop a tech giant, it is likely to be in cybersecurity, but Check Point has been more of a tortoise than a hare, growing slowly, steadily but surely and its founders Gil Shwed, Marius Nacht and Shlomo Kramer do not seem inclined to pursue especially aggressive mergers and acquisition policies.
While Shwed runs Check Point as CEO, Nacht who is chairman has pursued other investment avenues including the aMoon healthcare venture capital fund, which recently closed its $660 million second fund. Kramer has founded other cybersecurity companies including Imperva recently sold for $2.1 billion and Cato Networks, which has raised $125 million.
A former senior Check Point engineer Nir Zuk cofounded Palo Alto Networks in 2005, establishing it as a US company with a major development center in Israel, in order to develop firewalls capable of detecting finer infiltrations. It has acquired eight companies for nearly $2 billion including four Israeli companies, and Palo Alto Networks is already worth $23 billion, over 15% more than Check Point.
Israel's second most valuable company is Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) , which several years ago was worth $60 billion - an amount that did briefly make it a tech giant. But after taking on enormous debt to buy Allergan's generic division Actavis for $40 billion just as the generics market in the US saw prices slump, Teva's company valuation has shrunk to below $18 billion.
In the 1990s and 2000s, the question was asked as to why Israel had never produced a Nokia, just a Finland, a small country, had produced a mobile phone tech giant. In the late 2000s, for a brief period people said Israel has produced its own Nokia and it was called Teva. But then in 2011, Nokia collapsed having failed to anticipate the rise of the smartphone, and a few years later Teva proved it truly was Nokia by contracting to a fraction of its former value.
Israel's next most valuable tech companies are the veteran business software solutions companies Amdocs Ltd. (NYSE: DOX) and NICE Systems Ltd. (Nasdaq: NICE; TASE: NICE), worth $7.5 billion and $7.1 billion respectively. Both companies were founded in the 1980s and have shown little inclination for the aggressive marketing, diversification and mergers and acquisitions that might make them into a tech giant.
Two other companies large, more mid-tech than high-tech companies about this size are Israel Chemicals (TASE: ICL: NYSE: ICL) worth $6.5 billion and defense electronics manufacturer Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT) worth $5.5 billion. Both have limited growth capabilities. Israel Chemicals is based on an Israeli government concession for Dead Sea and Negev minerals, which it could potentially lose in the coming years. Elbit, which recently acquired Israeli Military Industries for NIS 1.8 billion is limited by the heavily regulated defense industry protocols, which would likely limit international expansion.
Of the emerging crop of newer publicly traded Israeli companies, the most promising are DIY Internet building company Wix, worth $5.7 billion and cybersecurity company CyberArk, worth $4.2 billion. Both companies have grown rapidly over the past year and the next few years will provide a clearer idea of whether they can become tech giants.
In recent years, successful startups have preferred raising large finance rounds rather than going public. There are more than a dozen Israeli startups who are unicorns (companies worth more than $1 billion) or well on the way to it including: software company ironSource, taxi-hailing app Gett, online brokerage company eToro, cloud storage company Infinidat, artificial vision technology company OrCam (set up by the founders of Mobileye), content recommendation companies Taboola and its rival Outbrain, freelance marketplace Fiverr, ridesharing startup Via, DevOps company JFrog, and cybersecurity company Cybereason.
Anyone of these companies could perhaps become a tech giant with that elusive mix of marketing, diversification and mergers and acquisitions.
Published by Globes, Israel business news - en.globes.co.il - on March 24, 2019
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