“It looks to me like the Pitango fruit, not an orange,” says CE Unterberg Towbin founder and chairman Thomas I. Unterberg (partly in jest and partly in earnest) as he prepares for another photograph alongside the banner at the entrance to the bank’s Israel branch in Herzilya. In recent weeks the financial newspapers have been running an advertisement by the bank, at the center of which is an orange with a green label on it with the bank’s name in English. Beneath the orange appears the caption: Made in Israel, issued in London and New York.
Whether by coincidence or not, Tom Unterberg (76) is in Israel for a four day visit, in the very week that the bank is remarketing itself through the latest advertisement. “If you ask me why I’ve come to Israel, I would say in response that it’s just like asking me why I go to California,” he says. “I travel to places where we have activity, and I hope that in time, I’ll have occasion to travel to India and China for the same reason.” Unterberg adds that he has been coming to Israel 3-4 times a year for the last 25 years. “If we weren’t committed to the Israeli market, I wouldn’t be coming here that often,” he says smiling. Incidentally, Unterberg lives in New York. “California bores me, even Israel is a lot more interesting than California,” he says.
When investors want returns, and fast.
CE Unterberg Towbin was formed in 1932 by Tom’s father Clarence Unterberg. In 1977 it merged with L.F. Rothschild to form L.F. Rothschild, Unterberg, Towbin. In 1990, the firm again became privately owned and independent when Tom re-launched the firm as a full-service investment bank focused on emerging growth companies in sectors ranging from technology to healthcare and security.
Tom Unterberg first entered investment banking in 1956 when he was in his mid 20s. Between 1960-1971, he served as a partner in the bank his father founded. From 1971 to 1977 he served as managing partner and then as senior partner, CEO and chairman of the merged entity through 1987, when he left the family business for three years to work as head of the technologies division at CE Unterberg’s competitor, Lehman Brothers (“It’s a long story”).
CE Unterberg’s Israel office is currently celebrating its third anniversary. It is headed by Mark Green, who previously worked for Citigroup’s Israel branch. The branch has two other employees aside from Green, David Jaskel and Simon Farhi.
Globes: Tom Unterberg, most of the participants who spoke during the first days of the Davos Conference expressed optimism about the future, and claimed that 2007 is likely to be ‘a Cinderella year for the global economy’. Do you agree with them?
Unterberg: “I am not an economist. I am interested in the growth rates and profitability of the technology and healthcare companies in the markets that we’re active in.”
The behavior of capital markets and the state of the business of companies, both public and private, is not detached from the state of the global economy.
“True (smiles), but a serious discussion about this would take a long time. At Unterberg Towbin, we focus on managing the provision of capital to growth companies in the technology and healthcare sectors, and such activity can be marginally affected by the state of the global economy. However, one cannot generalize or come to conclusions as to whether or not the latter will affect the former.”
Mark Green: “In the same context, I can say that we now have more deals in the pipeline, both in Israel and the US, than we had a year ago. However I can’t give a reason for this. Perhaps it’s us, or perhaps it’s the companies, and perhaps those speakers at the Davos Conference were right.”
Unterberg: “That’s correct. We now have a bigger pipeline of deals than we had last year. Apparently, investment institutions have more of an appetite today that they had in the past.”
And what’s the reason for this?
Unterberg: “To be honest, I’ve been in the business for 50 years and I’ve stopped trying to understand why this happens. There are some mornings when the investment institutions wake up with an appetite for flotations by new technology companies, and other mornings when they don’t.”
And to what extent will this demand cover Israeli companies in 2007?
“It will be seen in Israeli companies to the same extent as it happens with US companies. Until two years ago, they talked about ‘the Israeli discount’, that is to say, an Israeli company was floated or sold at a discount compared to its US counterpart, because it was Israeli. Today, however, I don’t think that a company’s Israeli identity should be a disadvantage. I treat an Israeli company just as I would treat a company from California.
“To be honest, I would rather that you stopped talking about Israel as if it were an island on the edge of the world. For me, an investment in Israeli is no different from an investment in the US or in any other country.”
The number of Israeli companies sold in 2006 was larger than the number which floated. Are we likely to see a similar trend in 2007?
“The choice of flotation or sale is one that every private company has to wrestle with almost daily, as do the investment bankers advising the company as to which option to choose. Today, the IPO market is dominated by big companies that can make a flotation easily on Nasdaq or the New York Stock Exchange (NYSE), with the assistance of the leading global investment banks. On the opposite side you have companies backed by venture capital that have values of $100-150 million before money, which do not have easy and quick access to an IPO. The IPO market, as it is today, needs to change, in order to allow small companies wishing to raise $30-40 million to go public.
“So I believe that London’s Alternative Investment Market (AIM) is likely to become the next Nasdaq. Actually, AIM is today what Nasdaq was 25 years ago. So before we answer the question as to which is likely to be more dominant this year - flotations or sales - we need to answer the question as to whether there is another trading platform where companies with values of $100-150 million can float, before they decide whether or not they want to find a strategic partner to merge with. In my opinion, most companies don’t want to choose the option of teaming up with a strategic partner.”
Why?
“Because most of them want to grow and develop on their own, like us. We want to grow alone and not join forces with another investment bank.”
Green: “The large number of Israeli companies sold last year was, among other things, the result of pressure on companies from investors, usually from the venture capital industry. These reach the point where they want to see a return on their investment, and they consider a sale of the company they’re invested in as the quicker option. Another option would be to make a further investment, wait another year or two and then make a flotation. In most cases, they won’t consider this. In my opinion, people in Israel do business for the sake of business, that is to say they prefer to sell companies rather than trying to make them global leaders over the long-term.
Unterberg: “It doesn’t just happen in Israel, but almost everywhere. Venture capital investors, who are under pressure and have to show returns on the investments they’ve made, are not willing to stay in the company too long, so they look for a way out.”
Green: “Aside from sales or flotations on Nasdaq or AIM, I believe that in 2007, the Buy Out funds’ activity in Israel will increase. At present, there’s only a few funds like these in Israel, in contrast to the US, where Buy Outs have almost become a trend.”
Building on PIPE
As mentioned earlier, Unterberg and Green believe in AIM’s future, especially as trading platform for small and medium-sized companies. CE Unterberg is currently acting as underwriter for an offering by Orpak Industries (1983) Ltd. (AIM:ORPK) to US investment institutions and a secondary offering by Leadcom Integrated Solutions Ltd. (AIM: LEAD), both of which are listed on AIM.
You make a point of marketing AIM as a worthy trading platform, but as things look at present, investment institutions in the US still refuse to treat it as such.
Green “True. The institutional investor community in the US has yet to be convinced that AIM is a real place where one can trade shares. It won’t happen overnight, but I believe that in the course of time, their view on AIM will change.”
AIM came in for a lot of criticism last year. Its detractors claim that it is characterized, among other things, by light-touch regulation and thin volumes, which harm its reputation. Do you agree with this?
Unterberg: “In a lot of cases, that criticism is correct. However, as we see it, AIM is just as much a business platform as Nasdaq is.”
Green: “As regards marketability, if you compare the marketability level of small and medium-sized companies trading on Nasdaq, with those on AIM, you find that it’s also low. To put it another way, most small companies, and it doesn’t matter where they’re traded, have volumes that are typically low. Likewise, the quantity of floating shares is another factor that affects marketability. Leadcom, for example, is a medium-sized company, but the level of its marketability is more than respectable for a company of its size, thanks to the quantity of its floating stock.”
Recently, more and more companies trading on AIM, Israelis included, are considering a dual listing on Nasdaq, or even an offering.
Unterberg: “True. This is a trend that will continue to expand. At present, we don’t think that a process like this can be carried out that easily, since the US investment community still doesn’t know about AIM. We’re currently trying this with a couple of companies but I’m not sure that we’ll manage it. Moreover, I think that a company which is trading on AIM and wants to be also traded on Nasdaq, should not make do with dual listing, but it should also make an offering, in order to get investors to listen to its story.”
How do you think the IPO market will look this year?
Unterberg: “I believe that there will be more flotations this year than in 2006, since there are now more companies ready to float than there were a year ago.”
Green: “I think that 8 or 9 Israeli companies will make IPOs on the US capital market this year, and most of them will be strong companies that have been survived a good many difficult years and their activity is now beginning to bear fruit.”
Aside from mergers and acquisitions, CE Unterberg is also known as of the leading banks in Private Investment in Public Equity (PIPE) deals. To be more precise, the bank is ranked sixth among investment banks worldwide for PIPE deals in 2006. Last year CE Unterberg raised a total of $316 million in 16 PIPE deals. Incidentally, it is ranked no. 1 in PIPE financing in Israel, having raised, among others, $28 million for biotechnology company XTL Biopharmaceuticals Ltd. (LSE: XTL; TASE:XTL), and $15 million for printed circuit board developer Camtek Ltd. (Nasdaq: CAMT; TASE:CAMT). “I believe that this year, more and more Israeli companies will raise PIPE financing, or combine a PIPE financing round at the beginning of the year with a secondary offering later on in the year,” concludes Green.
Published by Globes [online], Israel business news - www.globes.co.il - on February 7, 2007
© Copyright of Globes Publisher Itonut (1983) Ltd. 2007