“Panic for growth leads companies to non-strategic acquisitions”

“The next era is coming, and along with it comes the next era of investors and challenges. We’re going to see a transition from rapid growth to the creation of sustainable companies. We’re looking at the risk metrics. We’ll see more companies grow into corporations, and that is the industry's big challenge,” said Hila Himi-Alpert, CEO of Discount Capital Markets, during Calcalist and Discount Tech’s Unicorn Forum.

Himi-Alpert believes that 2021 proved to be the new golden age of growth, and that became a central parameter in company valuations. “Everyone knows that multipliers increased, but now we’re seeing the premium that companies receive for high growth has greatly increased in the past five years.”

“That change puts a lot of pressure on entrepreneurs and investors to grow and expand, even if it means ‘buying’ that growth. Over the past year, we’ve seen double the amount of transactions by Israeli technology companies acquiring startups. As long as that pressure continues, the trend will grow and we’ll see more rapid acquisitions, and not necessarily those that have a long-term strategic perspective.”

She added that “we’re seeing more companies who want to rapidly ‘buy’ revenues. When you buy revenues you justify the valuation of your company, but you aren’t necessarily creating something sustainable. There’s a difference between buying revenues to buying an actual product that you can sell to a customer or a technology that can accelerate the company’s technological developments.”

“Companies that buy only with growth in mind, may find themselves in situations where it will be difficult for them to justify their value - when the market slumps or when profitability or a business’ survival will become an issue,” she said.

Himi-Alpert also expects to see more equity players. "The industry in Israel started with venture capital funds, but over the past decade we’ve seen more ‘growth money'. We have also seen more institutional entities entering the field and financing large deals.”

“Over the past decade, companies wanted to build a product and prove their monetization ability, but now they want to build unicorns. Today, in order to fully understand the concept of unicorns, companies need to add to their executive board experts from other corporations that can help build that growth. We’re seeing more transactions where startups are being sold early-on, and that trend will grow,” she said.