99 Israeli high-tech exits totaled $6.94 billion in 2014, up 5% from $6.59 billion in 2013 when there were 90 exits, reports IVC Research Center and law firm Meitar Liquornik Geva Leshem Tal. Although last year's figures were close to those of 2013, a detailed analysis reveals significant changes and interesting exit trends.
Last week PwC reported that Israeli exits totalled $15 billion in 2014. IVC explained that there methodology relates to capital raised in the exits, while PwC related to the total value of the companies.
2014 saw significant growth in the number and size of IPO exits. 17 IPOs accounted for $2.1 billion, compared to eight IPOs worthy $360 million in 2013. MobilEye, the largest IPO of 2014, Mobileye(NYSE: MBLY) raised slightly over $1 billion and was listed on the New York Stock Exchange. There were 11 Israeli high-tech IPOs on Nasdaq in 2014, raising amounts ranging from $35 million to $150 million. The second largest IPO in 2014 was made by SafeCharge International Group plc (AIM: SAFE) on London’s AIM.
Meitar Liquornik Geva Leshem Tal partner Alon Sahar noted that even though total capital raised through exits in 2014 was not much different from 2013, the blend of deals is instructive. He said, “The interesting finding of 2014 - in fact the reassuring one - is connected to the increasing number of IPOs. Sometimes IPOs reflect a ‘market trend’ stemming from public readiness to invest in certain sectors, such as life sciences. In other cases, IPOs reflect the real ability of the industry to build larger companies for the long term.”
Sahar said a correlation can be found between the volume of IPOs and the number of growth round deals, which is also on the rise. “In light of success stories such as Mobileye and CyberArk, two companies that brought on investors at later stages and then followed the IPO road, more companies can be expected to turn in the same direction. This trend and the appeal of building larger companies may also explain current findings on M&A proceeds, where the number of deals below $5 million dropped to the lowest in a decade, with only 25 deals.”
In 2014, deals involving Israeli and Israel-related companies that were acquired or merged were valued at $4.84 billion, 22% down from $6.23 billion in 2013. Analysis of M&As by deal size reveals a 45% rise in the number of deals ranging from $100 million to $500 million in 2014. 16 M&As accounted for $2.91 billion, down from 11 deals in 2013 worth $2.57 billion. Five deals ranging between $50 million and $100 million brought in $425 million, 73% down from four deals in 2013 worth $246 million. The number of M&As ranging from $10 million to $50 million rose 13% from 2013.
Further analysis of exits found that proceeds from deals ranging from $50 million to $100 million soared 156% from 2013. The increase reflected a large number of IPOs - 8 out of 13 exits - accounting for 58% of total proceeds within the range. Exits worth less than $5 million fell 36%, continuing the trend from 2013.
Changes in the deal size appear to be responsible for two contrasting trends, the research found. On the one hand, the average M&A deal in 2014 fell to $59 million from $62 million in 2013, in deals below $1 billion. On the other hand, in 2014 there was a notable jump in the M&A return on equity ratio, reaching an average of 6.22 from 4.29 in 2013. The calculation is made as a ratio between capital from M&A exits and the total capital raised by companies prior to their exit. The measure reflects the relative value received by company investors following a company’s exit.
IVC Research Center CEO Koby Simana said, “Although 2014 M&A figures show a decrease in total proceeds from the previous year, 2014 was actually far more successful in terms of return on equity for investors. It’s important to remember that in contrast to an IPO, where investors may continue as shareholders and sometimes increase their shares, as happened following the Mobileye IPO, in M&A deals investors no longer have a stake following the exit.”
He added, “Proceeds from M&A are divided among entrepreneurs, investors and sometimes company employees, and investors expect a positive return on equity. In the venture capital industry, it is customary to strive for a minimum return of three times equity. In these terms, 2014 was an excellent year, especially in the life science, cleantech and communications sectors, with the highest annual return on equity.”
Of 82 acquisitions of Israeli high-tech companies in 2014, 24 were by other Israeli companies, up from 19 in 2013.
Published by Globes [online], Israel business news - www.globes-online.com - on January 6, 2015
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