Israel’s technology industry is growing up and the stock market is benefiting.
Investors and entrepreneurs are increasingly choosing initial public offerings over buyouts, with eight companies raising $361 million last year, the most since 2007, according to data from IVC Research Center. While mergers and acquisitions still represent the highest proportion of transactions, with $6.3 billion recorded last year, companies opting for listings from London to New York are closing the gap.
“This is something new and is a key element in companies staying independent and growing bigger,” said Koby Simana, who runs Tel Aviv-based IVC. “The contribution will be enormous and not just in creating jobs.”
Israel is gaining from a global stock-market advance that pushed the Nasdaq Composite Index up 38 percent in 2013 to a 13-year high. Technology companies including Twitter Inc. helped lead the best year for U.S. IPOs since the financial crisis, data compiled by Bloomberg show.
The trend also reflects a shift in strategy as owners of Israeli companies no longer seek to sell their early-stage companies to get a speedy return on their money, said Rubi Suliman, a partner at PriceWaterhouseCoopers Israel.
“In Israel, where the exit culture is so often under fire, the IPOs may herald a new era,” said Suliman. “Many entrepreneurs and their investors are now looking to grow their companies and not just seek a quick exit.”
While Israel’s mid-cap TA-100 Index rose 15 percent in 2013, companies are selling shares on the Nasdaq to access a pool of capital the domestic market can’t provide. The gauge gained 0.1 percent at the close in Tel Aviv.
The largest stock sales by Israeli technology companies last year included Enzymotec Ltd., a maker of medical foods, and Wix.com Ltd., which provides online tools to create websites.
Enzymotec raised $71 million in September and its shares have almost doubled since then. Wix.com garnered $127 million from investors in November, the nation’s largest IPO in the U.S. in more than six years. The stock is up 48 percent.
Technology companies contribute about 80 percent of industrial exports, according to the Central Bureau of Statistics. Israel’s economy, which is forecast by the central bank to match 2013’s 3.3 percent growth this year, would benefit should companies continue to choose going public, said Jonathan Katz, a Jerusalem-based economist at HSBC Holdings Plc.
“This would be positive in terms of job creation,” said Katz. “If it became a long-term trend, then we could see more balanced growth in the sense that growth wouldn’t be coming overwhelmingly from the service sector and selling off startups, but from a broader-based industrial acceleration.”
While the IPO market has a long way to go, transactions overall in the technology industry reflect its maturity, according to Simana at IVC.
Within the mergers and acquisitions, there was decline in the number of transactions below $10 million, boosting the average deal by 181 percent to $87 million in 2013 compared with three years earlier, IVC figures show.
Among the largest Israeli technology companies changing hands in 2013 were the purchase of map software producer Waze Inc. by Google Inc. from BlueRun Ventures in June for $966 million and Cisco Systems Inc.’s acquisition of software maker Intucell Ltd. from Bessemer Venture Partners for $475 million.
Other companies have resisted buyers. Security company Check Point Software Technologies Ltd. grew by raising money from selling shares. It has multiplied in value since its IPO on the Nasdaq in 1996 and now is worth $13 billion.
“The companies that choose this path will be able to later become the large multinationals that we have been all looking forward to in recent years,” said Suliman at PwC.