Israeli high-tech financing breaking records: $1.12 billion in Q2/2015

According to IVC, an Israeli research firm, “One hundred and seventy-nine Israeli high-tech companies raised $1.12 billion in Q2/2015. The quarterly amount was remarkably high, exceeding even the former record high of $1.11 billion invested in Q4/2014. This is a 12 percent increase over the $997 million raised by 163 companies in Q1/2015, and 20 percent more than the $928 million invested in 174 companies in Q2/2014.”

“In Q2/2015, Israeli private equity performance reached a quarterly record, with 29 deals amounting to $1.67 billion in capital. The quarter ended with the largest number of Israeli PE deals in comparison to the 5-year quarterly average of 17 deals. The quarterly amount invested in PE deals was the highest in three years, far above the $145 million and the $385 million invested in Q2/2014 and Q1/2015, respectively.”

This increase in investments occurred despite the turndown in international stock markets and growing concerns over the future of the world economy.

Marianna Shapira, Research Manager at IVC Research Center, says, “Israeli high-tech companies appealed to many private equity investors, leading with $1.4 billion in capital. We’ve observed this rapidly growing interest in local high tech, as the sector’s share in PE investments grew constantly from quarter to quarter, starting in the end of 2013, and peaking at 81 percent of total investments in Q2/2015. In comparison, Israeli high tech captured 78 percent and 54 percent in Q1/2015 and Q2/2014, respectively. While in both previous quarters technology deals led in share, with an upward trend, technology investments leaped from $80 million in Q2/2014, when this trend first started, to current levels at multiples of nearly 18 times that amount. Judging from the current development trend in Israeli high tech and our conversations with investors, PE funds suppose that Israeli technology sector offers various engagement opportunities.”

Foreign PE funds were responsible for the top four deals in 2015, exceeding $100 million each, together amounting to nearly $1.3 billion in H1/2015, The buyout of Lumenis, a medical device company, by XIO Group, a Chinese PE fund, amounted to $510 million, 30 percent of total PE deals in Q2/2015.

Ehud Ozery from Ecovis Israel believes that Chinese investment in Israel is likely to continue as Chinese investors realize that investment based on industrial production has come to an end and that they need to combine the ability of Israeli high tech to innovate and renew with the ability of the Chinese to mass produce, benefitting both sides.

According to an article published in “Globes – Israel business news,” managing partner David Fuchs of the Israeli-Chinese investment fund Synergy China Fund said: “The money flowing in is just the tip of the iceberg; there are many more good investors and strategic partners who are looking for interesting investments within China and don’t reach Israel.”

The Chinese news site CCTV, which is affiliated with the Chinese government, published an article about Chinese companies seeking technological developments in Israel. The article said, among other things, that “the governments of China and Israel, along with leading universities from the two countries, collaborate on the establishment of some of the most advanced R&D centers in the world and in Israel – a country that is increasingly becoming recognized as the Silicon Valley of the Middle East. Tech research labs in Israel have received hundreds of millions of dollars in investments to develop new inventions that will conquer the hearts of consumers, investors, and manufacturers. Chinese tech giants – Alibaba, Baidu, Foson, Lenovo, and Xiaomi – signed deals to open R&D centers in Israel.”

The article went on to say: “Chinese companies understand that the traditional means of doing business, which includes manufacturing low-quality, cheap gadgets, is no longer a winning formula. Israeli companies are known to be leaders in innovation in the Internet of Things, online information security, educational technology, fintech, and mobile and digital healthcare devices. At the same time, Chinese companies know better how to bring these products to the mass market.”

Ehud Ozery from Ecovis Israel adds that in addition to US and Chinese investments, German international players are also looking for investments in Israel.

According to “globes – Israel business news,” the German energy giant RWE wants to invest in Israeli technologies as part of its strategy of expanding its global business. The company plans to invest tens of millions of euros annually in finding technologies that will enable it to provide added value to its customers.

“Israeli entrepreneurs are not always aware of Germany’s potential as a target for commercial, industrial, economic, and technological cooperation,” says RWE Israel Innovation general manager Mickey Steiner, who was SAP Labs Israel Managing Director until the end of 2013, and is now also VP of the Germany-Israel Chamber of Commerce. “RWE’s new focus in new areas, which is related to its current business, is a golden opportunity for entrepreneurs and companies with technologies concerning the relevant areas.”

We expect an increase in foreign investments in Israel in the near future, by international players and by foreign PE investors from the US, China, Germany and other countries. We just hope that the technology and knowledge that was born in Israel will form the basis for strong Israeli global companies.

The increase in investments occurred despite the turndown in international stock markets and growing concerns over the future of the world economy.

Author
Ehud (Udi) Ozery