Israeli High-Tech Experiences Sharp Decline in 2023: Cyber Sector Emerges as Saving Grace

In a recent report published by accounting and consulting firm PwC Israel, the state of the Israeli high-tech sector in 2023 reveals a significant downturn, with exits amounting to $7.5 billion—a stark 56% decrease compared to the previous year. This marks a substantial 91% decline from the record-breaking $82.5 billion in exits witnessed in 2021.

The report underscores the worrisome trend of only 45 exits in 2023, reminiscent of transaction levels from a decade ago in 2013. Notably, nearly half of these transactions, amounting to $3.8 billion, occurred in the cyber field, constituting 51% of the total exit value. This concentration in a single sector raises concerns about the Israeli high-tech industry's overreliance on a singular domain.

Excluding Initial Public Offerings (IPOs), which included the significant listings of Oditi and Prietos, the average transaction volume increased by 13%, rising from $105 million in 2022 to approximately $119 million in 2023. Yaron Weitzenblit, partner and head of the audit and high-tech practice at PwC Israel, expressed concern, stating, "The State of Israel and the technology industry entered the war in a way that was not optimal at all."

Cyber companies played a crucial role in mitigating the overall decline, with 10 out of 12 transactions valued at $200 million or more occurring in the cyber sector. When excluding the two major IPOs, cyber transactions accounted for 100% of the total value of deals surpassing $200 million.

The analysis of cyber sector transactions revealed that the computing and software sector for corporations, particularly in cybersecurity, led with approximately 60% of all transactions, totaling about $4.2 billion. Notable transactions included Talon's acquisition by Palo Alto, Axis's acquisition by HPE, and Perimeter81's acquisition by Check Point.

Weitzenblit highlighted the unprecedented nature of the year, noting that global mergers and acquisitions froze, and Israel's performance in weathering past global crises did not manifest this time. In an unusual turn, only one company, Oddity, crossed the $1 billion valuation mark through its IPO in 2023, in contrast to 2022 and 2021, which saw two and 21 deals, respectively, surpassing $1 billion in the US.

In 2023, three significant transactions over $500 million took place, totaling approximately $3.1 billion, compared to the previous year's six transactions amounting to about $11.9 billion. Additionally, 14 transactions ranging between $100 million and $500 million occurred in 2023, totaling around $3.4 billion, with nine of them in the cyber sector. This is a notable decrease from the 17 transactions in this range recorded in 2022.

The report suggests a challenging landscape for Israeli high-tech, impacted by global and local crises, posing potential risks to the industry's foundations.