Israel's economic future hinges on strategic investments

In a statement released alongside PwC Israel’s 2023 earnings report, Partner and Head of Assurance and High-Tech cluster at the leading Israel professional services firm, Yaron Weizenbluth, reflected on the profound and evolving impact of the ongoing war on Israel's civil, military, and economic landscape in the aftermath of October 7, a day that marked a turning point in the nation's history.

“In many respects, Israel and its tech industry entered this war when in a suboptimal position,” Weizenbluth admitted. “The global economic downturn was already taking its toll.

There was also the local judicial crisis with its potentially devastating consequences, putting us at risk of rocking the very foundations of our society.”

The Israeli tech industry witnessed a 38% decline in deals in 2023, recording only 45 compared to 72 the previous year. The total deal value plummeted to $7.5 billion, less than half of 2022's $16.9 billion.

There was also a substantial contraction in the IPO market, with a mere three companies going public, raising $2.5 billion, compared to 13 and $10.6 billion in 2022. This pales in comparison to the record-setting year of 2021 when 72 IPOs amassed $70.1 billion.

“Looking at market trends on a quarterly basis, the point where things turned for the worst most precipitously was the first and second quarters of last year. That was the time when the global downturn became more pronounced and the Russia-Ukraine war began.

In Q2 2022, the number of deals sharply declined from 33 to 13, and the IPO market was halted almost completely. This downtrend has continued since then,” he said.

Cybersecurity sector is a beacon of resilience

Despite the grim statistics, Weizenbluth pointed to the cybersecurity sector as a beacon of resilience during tumultuous times.

“Over the years, cyber companies have had a rather sizable contribution to deal metrics relative to other segments,” he said, emphasizing that cyber companies played a crucial role, contributing to 19 out of the 45 deals, with a cumulative value of $3.8 billion, representing 51% of the total deal value.

10 out of the 12 deals exceeding $200 million originated from the cybersecurity segment, showcasing its significance in sustaining the market during tumultuous times.

As well, a trend in acquisitions, particularly by Israeli-affiliated companies, has continued, underscoring the robustness of the Israeli tech industry. Notable acquisitions include Palo Alto Networks acquiring Talon and Dig and Check Point acquiring Perimeter 81.

While the tech industry and deal market have faced challenges over the past year, Israel's ability to bounce back rapidly from global crises might still play a crucial role in the recovery process.

“A plausible working assumption going forward is that the global economic crisis will eventually and gradually abate, along with the present rampant inflation and interest rates,” he said. “This is expected to take some of the pressure off the local industry. After all, Israel remains a powerhouse for innovative technology and this is as relevant as ever. Large investments are likely to be waiting for the right moment to flow into this country.”

“If we are wise enough to capitalize on our strengths and create an environment that is fertile and stable enough for new companies across multiple segments to flourish, this might end up being a juncture for revitalization and regrowth,” Weizenbluth concluded. “In fact, it must be that way, because when it comes to Israel, any other alternative is just not an option.”