Tech sector buttresses falling value in Israeli M&A market

18 January 2018 4 min. read

The total worth of the Israeli merger and acquisition (M&A) market fell over the past year according to Big Four firm PwC, although deals in the nation’s tech sector continue to add value.

Despite a slight increase in the number of M&A deals in the Israeli market for 2017, up by 9% to 131, the average price of the deals saw its first decline in five years with a 38% drop to fall below pre-2015 levels at $142 million. As a consequence, the total market value suffered a 27% overall decrease to $12.2 billion as compared to $16.8 billion for the previous period.

Yet, although the figures examined by PwC exclude Intel’s $15.4 billion purchase of Mobileye (with transactions over $10 billion omitted for the purposes of statistical consistency), the Big Four accounting and consulting firm noted that the number of M&As valued at over $100 million had, in fact, increased – also contributing 45% of all deals closed by foreign investors – while those in the $400 million-$1billion bracket contributed 9% of the total to be up from a previous level of 5%.

M&A in Israel Technology sector

While the average price of all M&A deals declined, a separate report from PwC highlights the rising average value of deals originating from the tech sector, which have kept the overall market ticking over and contributed to the boost in transactions above the $100 million mark. Again discounting the mega-deals (here, those above $1 billion), the total value of the sector for 2017 topped $6 billion across just a handful of extra deals to record a 71% jump on the $3.6 billion of 2016, while the average price of the deals rocketed from $66 million to $101 million.

With the deals over $1 billion included (both Mobileye and Mitsubishi Tanabe’s purchase of NeuroDerm) the total figure for the technology-driven M&A sector in Israel (together with IPOs) jumps to an unprecedented $23.8 billion – greatly eclipsing the ($1 billion+-inclusive) $9.6 billion figure from the previous year, and standing at 135% above the comparative boom of 2015.IPO in Israel Technology sectorIn all, the proportion of deals above $100 million more than doubled in 2017, from 16% to 33% of the total number. The $50 million - $100 million segment also saw a slight increase from a 16% to a 19% share, while, year-on-year, the number of deals in the under $10 million and $10 million - $50 million brackets noticeably fell, by 55% to 38%, and 14% to 10% respectively (a combined drop from a nearly 70% market-share to less than 50%). Additionally, there were three deals closed in the $500 million - $1 billion range in 2017, after no such transactions last year.Public offerings and M&As in Isreal - 1While regulatory changes in China have had an impact, the overall decline in M&A value for the year, and the rising price trends in tech-sector sales, can both perhaps be attributable in part to a maturing of the markets. A number of transactions, including those concerning companies in the tech sector, have, as per reports, been held over for the beginning of this year – denting 2017 M&A figures but helping to increase their market value.

This steady approach may reflect a more general pattern. Yaron Weizenbluth, Hi-Tech Partner at PwC Israel, points to an evolution in the Israeli entrepreneurial sphere in recent years, stating in the report; “Previously local players set their sights on a quick exit, but this appears to have changed in 2017, reflecting more than anything a more mature mindset of the local technology firms.”

The report concludes; “This year gave us a sharper view of the processes and trends that have been unfolding in the Israeli tech industry. Experienced investors who are in it for the longer run, more mature and prudent entrepreneur who are willing to build and develop sustainable companies, and larger follow-on capital raises, turned 2017, and probably also the years to come, into a fertile bed for highly developed and vibrant exit market."

Public offerings and M&As in Isreal - 2

According to another M&A analysis in the Middle East, by Strategy& (PwC's strategy consultancy arm), the MENA telecom market is set to face a merger & acquisition wave as telco's continue consolidation and ramp-up their technology footprint.