Israeli entrepreneurs have traditionally preferred smaller, quicker exits over the complex, arduous alternative of building large multinational corporations. The handful of Israeli companies that IPO each year are the exception, not the rule. Yet in 2014, we witnessed two significant developments; decreasing M&A volume, and increasing IPO volume. Will this trend continue in 2015?
Over the past five years, the Startup Nation has transformed into the Exit Nation. In 2009, an Israeli startup was active an average of 8.59 years before acquisition. That has steadily decreased to 5.5 years in 2013.
Cementing this trend are the eight Israeli venture-backed companies acquired as of Q3 2014, taking a mere 3.95 years from their first round of funding to acquisition.
Judging strictly by M&A data, it seems that Israeli entrepreneurs are becoming even more impatient. Although the number of acquisitions increased from 39 in 2013 to 52 in 2014, the average transaction price tag dropped from $165 million in 2013 to $97 million in 2014.
Overall, M&A volume decreased to $5 billion in 2014 compared to $6.5 billion a year earlier. However, combining M&A data with IPO data suggests that the decline in total M&A is in fact due to changing attitudes amongst Israeli entrepreneurs.
According to Rubi Sulliman, partner at PwC Israel, “Companies that would previously tend to get sold to earn investors handsome returns faster decided this time around to go for the IPO options with the vision of growing even further. For this to occur, it is not enough to have an open IPO window on the markets. It takes entrepreneurs who are up for this complex task, coupled with patient and supportive investors that choose to go all the way.”
Israel-focused funds have continued to raise additional capital as new investors join the local ecosystem, funding companies that have internalized a long-term approach to building a company.
When Mobileye, a technological leader for vision-based advanced driver assistance systems that provide collision prevention, went public in August 2014, it raised $890 million on the NYSE at a valuation of $7.5 billion, completing the largest Israeli IPO ever.
2014’s 19 IPOs totaling $10.22 billion compared to just $1.2 billion in 2013 suggest that an increasing number of Israeli entrepreneurs are foregoing the easy way out.
After a record $15.27 billion in 2014 exit activity, investors have already witnessed more of the same in 2015.
With six Israeli companies already acquired in 2015 for $770 million by tech titans like Microsoft, Amazon, and Dropbox, M&A activity has a head start. Will a forthcoming surge of Israeli Public Offerings balance the scales? Or was 2014 a fluke?
Some notable opportunities are visible in the ad tech space, just one of the verticals in which Israeli companies are well-known market leaders.
IronSource, a company that offers ad tech and software distribution services is a strong contender for a 2015 IPO. Having raised a round of $85 million in September 2014 at a valuation of $1 billion, it is the first privately held Israeli company to join the exclusive “Billion Dollar Club.”
Outbrain and Taboola are also prime IPO candidates. Both Israeli companies have developed content discovery platforms that offer online viewers links to recommended sponsored content. They each raised about $100 million in an attempt to lay the groundwork for IPOs in the coming year, which could value each of them at around $1 billion.
Our expectations for more IPOs rely on the assumption that Israeli entrepreneurs are finally learning the virtue of patience and moving away from quick exit plans.
As we further test this assumption through ongoing conversations with our partners and investors, one thing is for certain: Israel’s high-tech sector is strong and full of investment potential. We welcome 2015 and all the interesting opportunities that it may bring.
Mor Assia is a founding partner at Israel-based equity crowdfunding platform iAngels. Prior to iAngels, she held several corporate positions, including Corporate Strategy Associate at Amdocs, Business Development Associate at SAP, and Strategy Associate at IBM Global Business Services.