Israel is emerging as an increasingly vibrant hot bed of technology investment and M&A activity for savvy deal makers.
If the current pace holds—40 Israeli companies have been acquired this year—this will be the highest rate of M&A activity since 1994. Since January 2011, acquirers have spent an aggregate $19.4 billion to acquire 107 Israeli companies. Fifty-five of these companies were venture backed and accounted for $12.8 billion in aggregate purchase price. Interestingly, 21 of these companies were acquired by Apple, Cisco, EMC/VMware, Facebook, GE, Google, IBM, Intel / McAfee and Salesforce.com. The future looks robust as well, as venture investment in Israeli companies in the first six months of 2013 alone totaled nearly $1.0 billion.
With a current population of less than eight million people (fewer than, for example, New Jersey, North Carolina or Virginia), you might wonder how Israel generates such a track record. The fact is that there are attractive acquisition targets all over the planet. EMC and others are increasingly setting their sights on Israel because the companies we find and the macro environment in which they operate can enable growth and success at global scale.
Intellectual Horsepower
In Israel, multinational acquirers have found high-performing teams solving complicated problems in sophisticated ways. To put it plainly, Israel offers a wealth of intellectual horsepower. While countries like China and India are producing impressive and increasing numbers of highly qualified technical engineers every year, Israel, by many reports, continues to have the highest number of engineers and scientists per capita in the world. This status reflects the strength of the infrastructure Israel has established to support and encourage technology advancement and indicates the sheer volume of intellectual horsepower that is available.
In addition to a range of excellent, technology-focused universities, such as powerhouses Technion–Israel Institute of Technology and the Weizmann Institute of Science, Israel’s renowned Defense Forces (IDF) consistently produces highly skilled and qualified engineers with an ability to transition to significant private sector success. Alumnae from the IDF’s Unit 8200, for example, which manages Israel’s army signals intelligence, have founded and grown a range of significant, technology-focused companies that have achieved enviable growth and success, such as Waze (acquired by Google in 2013), NICE Systems, Check Point and many others. Unit 8200’s reported SOOB events (think of out-of-the-box innovation-focused activities, similar to those sponsored by Google, Microsoft and others) are one example of the way the IDF focuses soldiers on bold, creative and interdisciplinary innovation in ways that prepare them for the transition to later private sector success.
Conducive Environment
Multinational acquirers, hungry for new ways to solve problems, have also found in Israel an environment in which talented engineers are focused on innovation and entrepreneurial development. Israel has invested heavily to create exactly this environment. For example, through funding initiatives aimed at young companies, Israel’s Office of the Chief Scientist (OCS) is charged with assisting the development of technology in Israel as a means of fostering economic growth, encouraging technological innovation and entrepreneurship. The OCS supports hundreds of initiatives annually at all stages of maturity, works through MATIMOP, a state non-profit aimed at promoting the development of advanced technologies and operates ISERD, the Israel-Europe R&D Directorate for the Framework Programme to promote cross border R&D ventures.
In addition, private drivers of innovation include organizations such as that run by alumni of the IDF’s Unit 8200, who drive the 8200 entrepreneurship and innovation support program to mentor and assist early-stage technology startups. Also, despite some recent fluctuation, venture capital investment in Israel remains robust, with nearly $1 billion invested in Israeli high technology companies in the first six months of 2013.
Shared Cultural Attributes
Serial acquirers have also recognized the opportunity that acquiring teams with shared values, visions and missions offers the combined business. As with many US-based companies, EMC, for example, has found in Israel companies that not only have extremely talented engineers and best-in-class technologies—we have also found teams that share our most fundamental corporate mandates (integrity, absolute attention to customer needs, ability to execute, etc.). That alignment enables significant post-acquisition investment, growth and business success.
The combination of intellectual horsepower, a fostering and innovative culture and environment and values and motivations that are common to those of many large multinationals is compelling for large acquirers operating at global scale. In a world with few technology hubs with this combination of attractive characteristics, Israel should continue to be on the radar screen for any serious technology investor.