Late last week, the controlling interest in Alma Lasers Ltd. was officially sold to US investment firm TA Associates Ltd. for $90 million, plus payments subject to Alma Lasers meeting certain milestones. People reading the report who are knowledgeable about aesthetic treatments simply could not understand what was going on. Why was an unknown company from Caesarea suddenly worth $150 million, if not more? I also searched and searched for venture capital funds that had invested in the company, but I couldn’t find any.
This is because Alma Lasers has never approached venture capital funds, and had few private investors. The company simply climbed one step after another without any outside help.
Alma Lasers president and CEO Ziv Karni is a physicist by training who has worked with lasers for many years. He first founded Orziv Ltd., which developed lasers for the diamond industry, and later founded Laser Beam Technologies Ltd. (LBT), which developed lasers for medical use. LBT was sold to ESC Medical, now Lumenis Ltd. (OTCBB:LUME), one of the prominent Israeli aesthetic treatment companies. Karni was appointed development manager at ESC, but was unhappy and left the company in 1999 to set up his own business, the nature of which was uncertain. Three ESC employees joined him: Yoav Avni (now Alma Lasers VP Technology), Nadav Bayer (now Alma Lasers VP Engineering), and Evgeny Kotzritzki.
Karni says, “We didn’t leave ESC with a dream about a new product or a though-out business plan. Many people didn’t understand why we left ESC, and I didn’t yet know exactly what we’d make or how we’d earn a living.”
The four entrepreneurs organized themselves and brought in some money from home. They were joined by some angel investors, including ESC co-founder Hillel Bachrach. Alma Lasers also obtained two grants from the Office of the Chief Scientist. The company started out with $660,000 altogether.
“Our policy was to do whatever necessary to avoid asking for more money from anyone,” says Karni. “We earned a living however we could, with no egos. We had a non-competition agreement with ESC, which prevented us from launching a product for the medical market two years, so we created another product for marking diamonds, while simultaneously pursuing development.”
“Globes”: What was your first product for the medical market?
Karni: “The first product we launched, two and a half years after leaving ESC was the ‘Soprano’, a laser for hair removal. It rather resembles a Russian tank, because we had no time or money for designing it properly. While it doesn’t look very pretty, we’re able to make a living from it. After two years, we relaunched the Soprano with a much better design.”
Weren’t you afraid the product would be harmed by marketing it with an ugly design?
“There are companies for whom marketing is very important to them, and I don’t denigrate that. For us, the technology was more important, and I believe that in the long run, good technology always wins in marketing.
“Besides, we knew that this product wouldn’t be the only foundation of our business. We don’t really believe in concentrating on one business, so we developed a number of products simultaneously. That’s why we didn’t go to a venture capital fund. We knew that they’d tell us, ‘Focus, focus, focus,’ and we don’t really like to focus. A focused medical devices company can vanish overnight.
“This was a big advantage when developed the Harmony; instead of developing a device for each application, we’re offering multiple applications on a single device. At the clinic there is a large box with a motor, but the technology is located in the hand-piece attached to the device. There are 12 different hand-pieces with different technologies that attach to the same motor. The doctor simply replaces the hand-piece for different treatments. This saves a lot of money and effort by all parties. We save money on production, the doctors save space at the clinic, and can easily carry out integrated treatments.”
Do these products have a technological edge, or is the main advantage in their combination?
“Each of our basic methods - laser, visible light and radio frequency (RF) - is innovative and patent protected. Our main breakthrough is in RF, which has amazing achievements that exceeded our expectations. We developed the product for the treatment of wrinkles and skin rejuvenation, but we realized during development that it was an excellent tool for body sculpting. Cellulite causes poor blood flow and affects activity by the lymph system in tissue. This causes all kinds of tissue fibers to protrude. The product restores blood flow and breaks down the fibers. It also shrinks the skin and improves its texture.
“Body sculpting is about to become a bigger field than facial treatments. Most companies in this sector are only able to treat fat deposits in specific places. We remove whole kilograms, the fat is simply burned up by improved tissue metabolism. We think that this could become a huge field for us: external treatment of excess fat or obesity among diabetics for whom diets fail to help.
“We’re also developing the product to treat acne. It turns out that improved tissue metabolism boosts blood flow to pores, causing them to open and release the fat accumulations and bacteria that cause acne. We’re developing this field together with a leading dermatology company that wants to build with us a combined drug and RF treatment for acne.”
Who are your present competitors?
“Syneron Medical Ltd. (Nasdaq: ELOS) is an important competitor. It has approximately double our sales, but we believe we’ll be a more worthy competitor as soon as we activate our full strength in the US. Our largest competitor is Candela Corporation (Nasdaq:CLZR), which has about $130 million in sales a year, but low profitability. Candela focuses on lasers, and tried to buy our products under OEM agreements, which demonstrates that they appreciate our technology.”
How were you able to develop so many patented products with so little time and money?
“We operate modestly. We bought this table second hand for NIS 100 from a laser company when they replaced their furniture.”
Alma Laser CFO Yaron Suher says, “We don’t waste money here. Ziv, for example, is the CEO, president, development manager, and sales manager outside the US. Our R&D investment is half the 7-10% at other companies. Our earnings before interest, taxes, depreciation and amortization (EBITDA) is 40% of turnover, which totals tens of millions of dollars a month. Our profit margins are similar to those of Syneron, and very high relative to the industry.”
Karni says, “We also saved time and money by first selling in other countries before entering the US, because in other countries we only have to use an agent. With good technology and profit margins for good agents, there’s almost no need to invest more in marketing.”
Alma Lasers also saves on clinical trials. It’s hard to find an employee at the company who has not sacrificed some arm or leg hairs or body fat for the good of the machines.
You chose a distribution company in the US, rather than selling through an agent.
Karni: “We initially avoided entering the US because it’s a very complex market. But in 2003, we established a company to focus on distributing our products in the US.”
Suher: “The US company did great work in terms of sales. In early 2005, when we began calculating the 2004 financial data, we suddenly realized that the company had handsome sales and excellent profits, and our management decided that maybe it was time to bring in a large investor, and leverage this for the company’s market recognition and reputation.”
Karni: “We hired William Blair & Co. as an advisor. They arranged a road show among leading US investors, and began getting messages that wouldn’t be satisfied with the 20% stake in the company that we were offering, but that they wanted control.
“The prospectus that William Blair prepared for us included a question, ‘What would we do with the money?’ We didn’t know what we’d do with it. The company operated on the basis of an excellent cash flow, and didn’t need $90 million. So they told us, ‘Why don’t you take some home?’ That was a completely new idea for us.”
Suher: “The deal with TA Associates created a lot of value for shareholders, but they still have large enough stakes in the company, so that in future, they’ll probably receive even larger remuneration than they received in the present deal.”
Published by Globes [online], Israel business news - www.globes.co.il - on March 29, 2006
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