Signal Hill Blog: Analysis & Perspectives

Israel is increasingly becoming a hot bed of IT M&A activity. Already this year, Apple officially announced it made its first acquisition in the country – flash memory developer Anobit. Acquisitions of Israeli IT companies have increased substantially every year since 2009, with 2011 boasting 23 transactions valued at over $930 million, according to Signal Hill data (not including semiconductor transactions).

The largest acquisitions of Israel-based companies in 2011 included Intel’s acquisition of Telmap for $325 million and 9.8x revenue; Citi Venture Capital’s $341 million acquisition of Ness Technologies; and VMware’s $100 million acquisition of Shavlik Technologies. These transactions are spread across the gamut of IT sectors as well – which means the country provides an opportunity for nearly every company looking to expand.

IT M&A Transactions with Israel-based Targets

M&A in Israeli IT dates back to the late 1990’s, when AOL paid $407 million to acquire instant messaging computer program ICQ (which was later acquired by DST in 2010 for $187.5 million). AOL came back to the country nearly 10 years later in 2007 to acquire Google AdWords competitor Quigo for $300 million – which at the time was expected to open the door for acquisitions in the country. Since then, M&A in the IT sector has taken off.

Apple’s latest purchase is not only a big deal because it is the company’s first foray into the country – but it highlights venture firm Pitango, which backed Anobit. Pitango is actually one of the few Israeli private equity firms to spread to U.S. – it has an established Silicon Valley office and regularly invests in U.S. companies. Signal Hill has been active with Israel-based companies as well: last year, Signal Hill security client iJet was acquired by 3iMind, which has a significant presence in Israel, while earlier this year, we announced a strategic investment in risk management solutions provider EXZAC by Israel-based Matrix.

Israel, with a population of 7.7 million, has about 60 companies traded on the NASDAQ, the most of any nation outside North America after China, according to Bloomberg. Israel is also home to the largest number of startups per capita in the world. Many big U.S. private equity and venture firms have set up shop in Israel, including Apax Partners, Landmark Ventures and Bessemer Venture, while large IT firms such as Intel, HP and Microsoft all have established operations in the country as well. The Israeli economy is relatively strong with A+ credit rating, which was upgraded in September, making investments in the area an easy choice. The Israeli tech community is also building ties to Europe and India more, not just the U.S. which means robust M&A activity will no doubt continue well over the next several years.