Yet another exit in the Israeli cyber industry: Calcalist daily has learned that the American private equity and venture capital firm Insight Venture Partners is acquiring control of the Israeli application security startup Checkmarx at a company value of $100 million. According to assessments, Insight is about to acquire some 60% to 70% of Checkmarx's shares.
Approximately $8 million has been invested in the [Israeli] company so far, so that the acquisition represents a nice multiple, although the purchase price is rather low considering the seniority of the company. Checkmarx was founded in 2006, and went on to become the testing lab for the American [multinational cloud computing] company Salesforce, generating a cash flow of millions of dollars a year. However, it failed to go beyond that threshold and create a value of hundreds of millions of dollars [annually].
The acquisition of Checkmarx by Insight ensures the company some measure of independence as a business entity that maintains its neutrality in the application [development] industry. Its [potential] acquisition by a technology giant like Salesforce or Google would have "painted" it in the purchaser's colors, thus getting in its way in the competition with other players in the market.
Fixing in the course of development
Checkmarx operates in the growing market of application data security. It focuses on automatic source code scanning and specializes in identifying, tracking and fixing security vulnerabilities during the development process, as well as in checking code compatibility with an organization's security requirements. The most significant advantage Checkmarx has over its competitors is its ability to detect security issues while the [source] code is written, thus eliminating the need for the check and repair process, which is liable to take quite a long time once software development has been completed. The service it offers is particularly suitable for applications that are frequently updated, with new versions released at a fast pace. The company has been facing growing competition for several years now from giants like HP and IBM, as well as from smaller companies such as [the American cloud-based application security company] Veracode, and the Israeli Perfecto Mobile.
Salesforce, one of the enterprise software giants in Silicon Valley, which develops enterprise cloud-computing software, is invested in the [Israeli] company. As part of its investment, estimated at the time at some $4 million to $5 million, Salesforce designated Checkmarx to be its major supplier of tests. It can be assumed that Salesforce made a bid for the acquisition of Checkmarx. However, the American company is known for its remarkably low bidding prices. According to the Registrar of Companies [at Israel's Ministry of Justice], Salesforce holds about 6% of Checkmarx's shares. If the acquisition is indeed completed, Salesforce stands to lose its holdings in Israeli startups. Salesforce already has an Israeli development center, based on the [Israeli] startup Navajo Systems, which it acquired in 2011, where encryption technologies for cloud-based data transmission are developed.
First acquisition for Insight
Checkmarx was founded in 2006 by Maty Siman as part of the technological Incubator Naiot Venture Accelerator, owned at the time by the Ofer Brothers Group, [Idan] Ofer and Udi Angel. In 2011, the Ofer Group sold Naiot Venture Accelerator to Avi Goldsobel, and it is currently active in the life sciences sector, providing incubation services under the technology leadership of Professor Moussa Youdim. At the same time, the Ofer Group has maintained its holdings in the company through its XT Investments, formerly Ofer Hi-Tech. According to the Registrar of Companies, it holds about 37% of Checkmarx's shares and is considered the major shareholder in the company.
The company founder and its CTO, Maty Siman, is a veteran of a [prestigious] Israel Defense Forces' cyber unit. He served in the past as a [senior] data security advisor at the Prime Minister's Office. According to the Registrar of Companies, he is the third largest shareholder in the company, holding 13% of the shares. The company CEO is Emmanuel Benzaquen, who had formerly served in various business development positions in companies such as Embedded Performance Inc. (EPI), which was subsequently acquired by Mentor Graphics, and ARC Semiconductor, which completed its IPO in London in the early 2000s. Also invested in the company are the American venture capital firm K1 Capital (31%), and the Japanese Intelligent Wave (4%).
Insight Venture Partners has been active in investments in Israel ever since 1995, but it has never before acquired a majority stake in an Israeli company. All the local companies it invested in have been eventually sold or went public on the stock market. The major ones are Wix, which was issued on NASDAQ, and the ad technology company Mediamind, which was acquired by [the American provider of digital media services] DG FastChannel Inc. for close to half a billion dollars.