2015 Israeli Startups exits hit $9.02 billion – up 16 percent from 2014 proceeds

• VC-backed exits reached an outstanding $4.98B – highest in 10 years
• M&A deals below $1 billion strongest in 10 years – at $7.2 billion
• IPO activity slows down in 2015, with $609 million raised in foreign markets
• M&A deals are getting bigger: Deals above $50 million make up 40% of deals and 90% of proceeds

IVC Online Reports that Israeli high-tech exits generated $9.02 billion in proceeds in 2015, the highest in the last three years – at 16 percent above 2014 in terms of exit proceeds – pl IVC-Meitar acing third in the past decade. A hundred and four (104) exits were made in 2015, 10 percent down from 2014 figures, while in line with the 10-year average of 100 deals. The average exit deal reached $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 percent of the total exit proceeds. The $1.25 billion acquisition of Fundtech by D+H, an international fintech company, alone accounted for almost 14 percent 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 percent 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 percent above the 10-year average and second only to the record set in 2013 – of $106 million.

Koby Simana, CEO of IVC Research Center believes there’s an explanation for 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”.

Israeli high-tech M&A exits reached $8.4 billion in 96 deals – the third highest year in a decade. This amount exceeded the total 2014 M&A dollar volume of $5.67 billion, as well as 2013’s $6.35 billion, while the number of deals in 2015 was slightly below the 99 M&A exits in 2014, resulting in a 53 percent increase in the average M&A deal – from $57 million in 2014 to $88 million in 2015.

Since there were somewhat less deals in 2015 compared to 2014, clearly the reason for the growth in total proceeds is the size of deals. Reviewing the top end exits, consisting of deals above $50 million, which accounted for nearly 40 percent of deals in 2015, IVC and Meitar found that while the number of deals above $500 million has remained unchanged, there was a clear increase in the number of deals between $50 million and $500 million. The proceeds from the 39 deals in this range group climbed more than 30 percent, from a total of $4.17 billion in 2014 to $5.44 billion in 2015.

M&A deals in particular experienced a shift in size with the number of deals below $50 million dropping while the number of larger deals increased. At the same time, 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.

Alon Sahar, Partner in law firm Meitar Liquornik Geva Leshem Tal, noted: “2015 continued to reflect the significant activity trend in the mergers and acquisitions market in the past few years, showing an increase both in the total dollar amount of M&As and the average deal amount. The growth figures disclose, among other things, companies’ readiness to be sold after they exhaust their growth opportunities. Companies are still being acquired for their human resources and technology assets, however in more and more cases the companies have a real ability to penetrate markets and establish an impressive business – a fact which is translated into higher valuations. Other impressive Israeli companies, which did not perform an exit but continue to grow both organically and through acquisitions – such as IronSource, Outbrain, Taboola, Fiverr or Sisense – are creating a significant trend, and their maturing valuation is also representative of Israeli high-tech’s growth.”

IPO exits slowed down in 2015, following an exceptional 2014. Eight Israeli high-tech IPOs accounted for $609 million, a mere 7 percent of the total exit proceeds in 2015, compared to 2014’s outstanding 27 percent. 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 percent of the amount raised in IPOs during 2015. The top three IPOs were performed on NASDAQ and included Novocure ($165 million) and Chiasma ($117 million) in life sciences and SolarEdge ($145 million) in the cleantech sector.

Dan Shamgar, Partner in law firm Meitar Liquornik Geva Leshem Tal, noted: “throughout 2015, the American capital market was not particularly receptive for IPOs, therefore NASDAQ 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.”

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.

Sahar from Meitar notes: “When adding buyout deals, where Israeli high-tech companies were acquired by private equity investors, the scope of activity in the Israeli technology industry turns out to be even more remarkable.” Sahar mentioned in particular two high-profile buyouts made in 2015, the Lumenis buyout by Chinese investor XIO, for $510 million, as well as the $438 million buyout of ClickSoftware by Francisco Partners.