from the November 2010 issue

Mergers and Acquisitons

In a recent editorial we wrote in depth about the relative small size of Israeli companies when they are acquired by foreign concerns. This is even more emphasized by the most drecent acquisitions.

AOL buys Israeli start-up 5min Media
The deal, estimated at about $65 million, is AOL's fifth acquisition in Israel.

AOL chairman and CEO Tim Armstrong said, "Our acquisition of 5min Media is the latest in a number of steps we have taken this year to better position AOL to capture the growing video opportunity on the Web. AOL is building a video ecosystem for the next decade. 5min Media is the perfect complement to our powerful video capabilities -- it provides a missing piece in the AOL value chain that completes our end-to-end video offering from content creation through syndication and distribution to the consumer experience and monetization." Ran Harnevo, who serves as chairman; Tal Simantov, chief marketing officer; and Hanan Laschover, chief technology officer, founded 5min in 2007. 5min is a platform for instructional videos in all kinds of fields that enables people to share their knowledge by uploading videos lasting up to five minutes.

5min has raised $13 million to date, reportedly from venture capital funds Spark Capital and Globespan Capital, along with private investors. The private investors include Nehama Karpol, Ofer Lazovski, and advertising agency Adler Chomsky's Grey Interactive Israel. The deal is AOL's fifth acquisition in Israel, having bought ICQ-developer Mirabilis, Relegence, Yedda, and Quigo.

Sun completes purchase of Taro
Sun Pharmaceutical, an Indian company, said that it has completed the acquisition of Israeli company Taro Pharma, after a protracted legal battle. The stock of Sun vaulted to a record high of Rs 1,984.70 before retracting to close at Rs 1,921.40 on BSE.

Sun Pharma paid about $39 million for the founding families' 12.7% stake, taking its shareholding in Taro to 48.7% at a total investment of $144 million, a spokeswoman for Sun said. The purchase of Taro will help Sun expand its generic offerings in the United States, Canada and Israel, the company said. Taro has factories in Canada and Israel that manufacture topical cream and ointments, liquid, capsules and tablets.

"We intend to build on Taro's market presence in US, Israel and Canada and its expertise in dermatology and pediatrics, along with specialty and generic pharmaceuticals, and over-the counter products," Dilip Shanghvi, chairman of Sun Pharma, who would double up as chairman of Taro, said.

Earlier this month, Israeli Supreme Court ruled in favor of Sun allowing it to exercise an option to buy shares owned by Taro's founding shareholders - the Levitt and Moros families - at $7.75 each.

"Post tendering of Taro promoter stake, Sun now controls 48.7% stake in Taro, ex-warrants , and voting rights of 65.8%. We estimate Sun to have paid around $37 mn for this stake," Edelweiss said in a note.

Qualcomm buys iSkoot Technologies
Wireless communications chip developer Qualcomm Inc. (Nasdaq: QCOM) makes few acquisitions, and has never before made an acquisition in Israel. Today, Qualcomm subsidiary Qualcomm Innovation Center Inc. announced the acquisition of an Israeli developer of technology for the transmission of web services on mobile telephones, iSkoot Technologies Inc. Qualcomm did not disclose the value of the deal, but it is reportedly $50-100 million.

iSkoot president and COO Jacob Guedalia and CTO David Guedalia founded the company in 2005. Most of the company's business is overseas, and it is headquartered in Silicon Valley, although its R&D center, which employs half the company's workf orce, is in Beit Shemesh, Israel. The company originally focused on the development of VoIP solutions for mobile telephones, but over time it expanded to develop other web-based solutions.

iSkoot has raised $32 million from prestigious investors, including Vision Opportunity Master Fund, Charles River Ventures, Khosla Ventures established by Sun Microsystems founder Vinod Khosla, and many private investors.

Qualcomm has a market cap of $72 billion. It is the world's largest supplier of mobile telephone processors and it owns the intellectual property for the CDMA protocol.

Qualcomm has invested in two Israeli companies, both in the past year. The larger investment was $7 million in Dov Moran's Modu Ltd., and the second in start-up Panoramic Power Ltd., which develops electricity grid management solutions. Both investments were made through the local representative of Qualcomm's corporate venture capital fund.

Ironically, Qualcomm's acquisitions in Israel were made in a field other than its core business. iSkoot's solutions are run on server farms or cloud computing, i.e. remote computers, through which it enables advanced applications, such as VoIP or social networks like FaceBook, MySpace, and Twitter to operate on mobile telephones, including previous generation phones. iSkoot began collaborating with Qualcomm as part of a joint venture to help Hutchison Telecommunications International Ltd. (NYSE: HTX; HKSE: 2332) develop a mobile telephone a year ago.

According to the Israel Venture Association, iSkoot has 70 employees. Qualcomm said that they would join Qualcomm Innovation Center. iSkoot's CEO is Mark Jacobstein. The company's customers include AT&T Inc. (NYSE: T) and T-Mobile, and it is profitable. Qualcomm has had a development center in Haifa since the mid-1990s.

Yahoo! buys display ad company Dapper for $55m.
Internet giant Yahoo! will buy display ad optimization technology developer start-up Dapper.

Dapper was founded in 2006 by Eran Shir and Jon Aizen.

Dapper has developed a technology platform that enables advertisers and agencies to create interactive display ads which reach the relevant audience.

Yahoo is already one of several companies who partner with Dapper, and Yahoo! said that owning the technology will help the company deliver innovative solutions to an even broader range of advertisers and integrate dynamic ad serving into key Yahoo properties. Yahoo! said it is committed to its Smart Ads program.

Yahoo! VP North America ad marketplaces Frank Weishaupt said, "Smart Ads will continue to be an important component of display advertising and the acquisition of Dapper will help Yahoo! to more efficiently deliver dynamic and personalized ads for customers across more of our network."

Dapper said that with the acquisition, "The era of untargeted, irrelevant ads seems closer to its end than ever before."

Dapper has raised about $10 million until now from venture capital firms Accel Partners and eXeed, as well as from Lotus founder Mitch Kapor.

Reprinted from the Israel High-Tech & Investment Report November 2010

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