Is Israel becoming a "sell-out" nation?
Israeli high tech has seen an impressive number of exits this year, with more than a dozen companies being sold for over $3 billion. But Israel Makov, one of Israel’s most respected corporate leaders, is not impressed.
The former president and chief executive of Teva Pharmaceuticals — the largest generic drug manufacturer in the world — is openly critical of what he deems to be Israeli entrepreneurs “selling out too soon.”
Mr Makov, chairman of Sun Pharmaceuticals and camera pill developer Given Imaging, says: “Start-ups are our greatest national economic resource and it is wonderful that some of them succeed. But many are being sold at their first stage of success at the lowest point in the value chain.”
Mr Makov cites a classic example as pay-TV solutions developer NDS, celebrated as an impressive exit when sold to Rupert Murdoch’s News Data Corporation in 1992 for $15 million. In March, NDS was sold to Cisco Systems for $5 billion. But at least NDS retained a major development centre in Jerusalem after its first exit.
Mr Makov explains that after some exits, overseas buyers simply close down their Israel operations and move development and production abroad.
“I fear the current situation is not sustainable for the Israeli economy. We have some 3,600 companies in our high-tech sector and according to the Israel Venture Capital research centre, only one per cent of them have annual revenue of more than $100 million. Only nine per cent have annual sales of over $10 million, leaving 90 per cent which are start-ups with little or no revenue.”
He continues: “Of course some companies are developing niche technologies and products and their only choice is to sell at the first opportunity. But many others could grow and we need a certain number of larger technology companies to provide employment and keep Israeli technology competitive on the global markets.”
Mr Makov rejects suggestions that there is a lack of capital for start-ups to grow into larger companies. “It is purely a problem of attitude.
“Entrepreneurs have to work hard to find investment funds but there is enough capital for good people with good ideas. Israel needs more entrepreneurs who want to engage in the challenging process of a growing a company over a long period of time, rather than selling out at the first opportunity.”
And Mr Makov, 73, knows a thing or two about growing companies. A graduate of the Hebrew University in agriculture, his business interests have changed along with Israel’s economy. In the late 1960s, he lived in London for several years where he was the UK representative of the Israel Citrus Board. “Back then oranges were Israel’s biggest export dollar-earners,” he recalls.
After flirting for a few brief years in textiles as chief executive of bathing suit manufacturer Gottex, he moved into the biomedical sector, first as head of InterPharm, which developed the Rebif treatment for multiple sclerosis and was sold to Merck Serono, and then Teva.
Under his auspices, between 2002 and 2007, Teva’s annual revenue grew from $2 billion to $8.5 billion. Since then he has served as chairman of Given Imaging, which has adapted military technology to redefine diagnostics by developing capsule endoscopy products, or in layman’s terms, a camera in a pill for surgical use. Given Imaging’s revenue rose from $95 million in 2006 to $170 million last year.
Mr Makov recently ended a spell as chairman of Netafim, the kibbutz -owned company, which invented drip irrigation, after control was sold to the London-based Permira Fund in December at a value of $870 million.
He says: “This was a deal that I did not object to. Kibbutz Hatzerim retains a large stake in the company and production and development of the drip irrigation systems will remain in Israel.”
In May, he was appointed chairman of the board of directors of Sun Pharma, an Indian pharmaceutical company with annual sales of $1.2 billion.
Mr Makov also runs BioLight Life Sciences Investments, a company he set up to encourage Israeli biomedical start-ups to grow, rather than sell out. It is traded on the Tel Aviv Stock Exchange.
“At BioLight we have developed a new commercial model by forming clusters of young companies engaged in the same area of innovative development. We have one cluster of start-ups in the field of cancer diagnostics and another cluster engaged in development of surgical treatments for glaucoma.”
He continues: “Any start-up has deficiencies — areas in which they are weak — because so few people are involved. Forming clusters stimulates innovation, helps entrepreneurs see things from different angles and complement each other. And ultimately it helps them grow.”
Mr Makov fears that Israel’s dearth of larger companies also encourages many of the country’s young talented high-tech professionals to seek opportunities abroad — talent that is ultimately lost to the country.
2012 Israeli Exits
Flash memory controllers Anobit bought by Apple for $390 million
Mobile advertising company Amobee bought by Singapore Telecom for $321m
Bronchial tubes endoscope developer SuperDimension bought by Covidien for $300 million
Breath monitoring company Oridion also bought by Covidien for $346 million
Video conferencing company Radvision bought by Avaya for $230 million
Fiber optics chipset developer BroadLight bought by Broadcom for $200 million
Telecom load management company Traffix Systems bought by F5 for $130 million
Smartphone application developer Worklight bought by IBM for $60 million
WiFi location company Aeroscout bought by Stanley Black & Decker for $250 million
Face recognition company Face.com bought by Facebook for $60 million
Flash memory storage developer XtremIO reportedly to be bought by EMC for a reported $450 million