Israeli high-tech companies closed 104 deals, totalling USD10 billion in exits, during 2016, according to the latest IVC-Meitar Exits Report. The figure includes 93 M&A deals with a total value of nearly USD8.8 billion including the USD4.4 billion Playtika acquisition.
Eight additional buyouts generated USD1.22 billion while three small IPOs garnered USD15.1 million.
The acquisition of Playtika by Chinese online gaming company Giant Interactive Group, for USD4.4 billion, was the largest deal of the year. According to the report’s editors, since it accounted for about 50 per cent of total M&A, and skews the data, it has been omitted from the M&A and IPOs analysis.
Adv. Alon Sahar, partner at law firm Meitar Liquornik Geva Leshem Tal, says: "Following several years of growth both in terms of deal numbers and their proceeds, 2016 presents an obvious slowdown. The analysis excluding the Playtika deal yields figures that are substantially lower than in previous years. It's impossible to tell whether this is the beginning of a new trend or a natural correction due to significant hikes in previous years. We will need to wait a few quarters to see whether or not the market is facing a profound change."
Looking at the majority of exit deals (excluding buyouts and the Playtika megadeal), the average exit deal reached USD46.3 million, 31 per cent below the previous year's average, which stood at USD67.2 million, and 21 percent below the five-year average.
However, “2016 was by no means sub-par,” says Koby Simana, CEO of IVC Research Center. "In fact, it proved better than the previous year in terms of the average exit multiple, and was one of the best in multiples overall. This, coupled with the relatively lower volume of deals compared to 2015, suggests to us that entrepreneurs and investors may not be pushing for exits as they once did. Instead, it seems investors are looking closely into other alternatives. An opportunity to sell requires positive returns and substantial multiples, otherwise companies and investors choose to wait patiently, opting for company growth.
Dan Shamgar, partner at Meitar Liquornik Geva Leshem Tal, says: "Generally speaking, the low interest environment and high cash balance of strategic acquirers, as well as the growth demands of young companies, justify buyers' continued interest in deal-making. We should hope that part of the explanation lies in the readiness of entrepreneurs and investors, against the backdrop of a certain slowdown on the buyers' side, to show patience and implement a long-term growth strategy to establish more profitable companies and get higher valuations in longer periods. The availability of capital, especially this year, allowed companies to raise unprecedented amounts and somewhat undermined their readiness to sell companies."
The average exit multiple – calculated as the ratio between capital invested in the companies prior to exit and the capital generated by the IPO and M&A deals – was at 4.34x for exits made in 2016, higher than the five-year average, though lower than 2014’s exceptional record of 5.29x. For VC-backed exits, 2016 ended with a 3.32x average multiple, second only to 2013’s 5.09x multiple.
The second largest deal in 2016 was the USD811 million acquisition of EZchip by Mellanox. This deal, along with the Leaba acquisition by Cisco and Sony's acquisition of Altair, established the semiconductors sector as a clear leader in 2016 exits, with an all-time record of USD1.39 billion, 32 percent of total exits and over twice its average in the past five years.
As an acquisition where both acquirer and acquired companies were Israeli, the EZchip-Mellanox deal highlights another important trend in local M&As. According to the report editors, two sided Israeli deals have been gaining prominence over the past three years, with 27 per cent of the M&As performed in 2016 involving local high-tech companies as both acquirer and acquiree. Like Mellanox, nearly 50 other Israeli companies have recognised the importance of corporate M&As as an inorganic growth mechanism and made at least one M&A deal in 2016, either in Israel or abroad. The result was an all- time record of USD3.28 billion in M&A expenditures by Israeli companies, in addition to over USD45 billion in M&A deals made by Teva Pharmaceuticals alone in 2016.
