Last updated February 2nd 2015
In the course of the first four weeks of the year, Israeli startup companies sold for a record $860 million, and observers expect large corporations to extend their shopping spree in Startup Nation well into 2015. According to the IVC-Meitar Exits Report, in all of 2014, 99 Israeli companies sold for a total of $6.94 billion, which translates into an average monthly rate of $578 million – two-thirds of the acquisition volume recorded in January 2015 alone.
The bulk of money (roughly $670 million) spent on Israeli companies in January went toward the acquisitions of Annapurna, CloudOn and Redbend. Why did giants like Amazon and Dropbox flock to Israel to gobble up these startup companies? A look at the latest string of acquisitions reveals not only promising new technologies and entrepreneurs, but also the notorious Israeli chutzpah – which helps international companies solve their problems creatively.
According to the IVC-Meitar Exits Report released this month, 99 Israeli high-tech companies sold for a total of $6.94 billion in 2014, up 5 percent from $6.59 billion of 2013 (90 exits). Koby Simana, CEO of the IVC Research Center, expects this trend to continue in 2015. “This wave of acquisitions started two years ago, and it’s gaining more momentum,” he tells NoCamels. Already in 2014, there was an increase in deals ranging from $100 million to $500 million – 18 deals vs. 12 in 2013.
Ofer Sela, Technology Partner at KPMG Somekh Chaikin, expects 2015 to yield additional exits, as 40-50 startups are mature enough for acquisitions. “It’s very hard to recruit talented employees in Silicon Valley now – the competition is wild,” Sela tells NoCamels.
That’s part of the reason why large companies are buying startups in Israel, which has been dubbed Silicon Wadi. “We’re not as disciplined as the Irish or the Indian, it’s not in our DNA,” Sela says. “We think outside the box when it comes to problem solving. When big companies present a problem and ask for a solution, Israeli professionals tend to daringly redefine the problem – and creatively solve it. At first, Israelis may seem arrogant or rude, but in the end, the process enriches and progresses the acquiring company.”
Amazon buys Annapurna Labs for $370 million
The biggest exit so far this year, is that of Annapurna Labs. Not much is known about this closely held chipmaker, which sold to tech giant Amazon for an estimated $370 million earlier this month. The company – named after one of the highest peaks of the Himalayas – develops chips that make server farms work more efficiently and cost-effectively. Amazon purchased Annapurna for its cloud computing unit, Amazon Web Services.
Yokna’em-based Annapurna was founded in 2011 by Avigdor Willenz, who also sold another chipmakern late 2000, ‘Galileo’, for $1.7 billion to Marvell Technology Group. Investors in Annapurna Labs include British chip designer ARM and venture capital firm Walden International. In the past three years, Annapurna has reportedly raised tens of millions of dollars in private funding. According to a report in Calcalist, as part of the acquisition, Amazon will open a research and development center in Israel.
According to Sela, Annapurna’s technology will help Amazon integrate hardware and software. “Companies like Apple, which offer both hardware and software, provide a better user experience,” he tells NoCamels. “Also, it’s disadvantageous and expensive for a company like Amazon to base its infrastructure on a third party.”
Dropbox acquires CloudOn for an estimated $100 million
Another major acquisition this month was by cloud storage company Dropbox, which acquired Herzliya-based startup CloudOn. CloudOn, which has 9 million users, develops applications that edit documents and spreadsheets on mobile devices.
In a letter to CloudOn users, company founders state that they have spent the past three years “changing the way people edit, create, organize and share docs on any platform.” The company claims that during that time, its apps were used to create, edit and share 90 million documents, making it a top 10 productivity app in 120 countries.
CloudOn founders Milind Gadekar, Meir Morgenstern and Jay Zaveri state that the company is now “taking the next step toward our vision of reimagining docs – by joining the Dropbox team. Our companies share similar values, are committed to helping people work better, and together we can make an even greater impact.”
HARMAN Buys Red Bend for $200 million
HARMAN International Industries, an American audio and infotainment equipment company that designs, manufactures and markets audio equipment mainly for the automotive industry, has acquired Hod Hasharon-based Red Bend Software for $200 million in cash and stock.
Red Bend is a provider of software management technology for connected devices that has been in the much-hyped Internet of Things field for several years. The company was founded in 1999, and has since developed over-the-air (OTA) software and firmware upgrading services.
“Building upon Red Bend’s strength in the mobile and carrier markets, HARMAN will accelerate Red Bend’s growth in the automotive space and will position Red Bend software as the de facto standard for OTA software services for mobile devices and automotive applications,” according to a statement issued by HARMAN earlier this month.
By 2020, it is expected that more than 90 percent of vehicles on the road will be connected, according to Frost and Sullivan, so it seems that with the acquisition of Red Bend, HARMAN will be able to tap into a huge market.
Only 4 percent of startups succeed
Simana argues that many startups can only be successful if bought – otherwise, they’re doomed to die. “Not all Israeli startups are destined to become the next Check Point or Mellanox,” he says, referring to two successful, publicly traded Israeli high tech companies. “There are 290 research and development centers in Israel, most of which were created by foreign acquisitions of local startups. Many startups can’t make it on their own.”
According to the Israeli Startup Success Report 1999-2014, published this week by the IVC Research Center and REVERSEXIT, only four out of 100 startups succeed and only four out of 500 are successful at growing independently. In addition, the study found that 46 percent of Israeli startups stop operating within 3.5 years on average. The good news is that 71 percent of successful companies are acquired. And if that rate will indeed grow further this year, as expected, we’ll see a range of international companies scouting the Innovation Nation for new, exciting acquisitions.