"There is an almost infinite number of foreign underwriters doing the rounds in Israel, significantly more than there were two to three years ago. Every investment banker comes with notebook with a list of companies that he or she courts and tries to persuade to make an offering on Wall Street," says Guy Preminger, CPA, technology leader at PwC Israel. The IPO window on Wall Street is open wide, but, at least for now, the Israeli companies that meet the criteria are not in a hurry to take advantage of the opportunity, unlike US companies.
"Among the US companies, all the ones of which they said two or three years ago that they would reach the stock exchange have done so," says Preminger. "Smaller companies have also started to ride this wave, at valuations similar to those of the larger Israeli companies. What happens in the US often comes to the Holy Land, but not always. This time it hasn't, and I'm not sure it will."
Preminger estimates that there are currently about 20 Israeli companies suitable for an IPO in the US. However, he says, "These companies are in a place where it is fairly easy for them to raise large amounts of money privately, without going to the stock exchange. They see the disadvantage of an IPO: in some cases, these are companies that have good levels of sales, but not sufficiently stable. They're a little afraid that their share price will soar upwards one quarter and plunge the next. Lack of consistency from one quarter to another, or insufficiently good profit figures despite high growth, are things that can bother the stock market."
A further reason for Israeli companies being slow to make Wall Street offerings is what Preminger calls "investor maturity". "Investors are not pushing companies to get to the stock exchange too early. I often hear 'The company isn't ready yet, we'll wait till next year,' and this comes both from entrepreneurs and from investors (mostly venture capital firms S. H-V.). Let's not forget that the stock exchange is also a means of realizing an investment. We can give high marks for maturity here, because there were periods in the past when every company that passed the threshold conditions and presented revenue of about $100 million would run to the Nasdaq."
Despite this, Preminger says that several Israeli companies have started the IPO process, "most of them not on full gas." This means companies that prepare themselves for an IPO at some point, but that will not necessarily go ahead in the end. What could speed up the process?
"Besides the feeling on the part of the management and investors that the company is ripe for an IPO, I think that what could give it a push is macro-economic considerations; if, for example, they fear that they will not be able to raise substantial sums in the private market," Preminger says.
As far as second-tier US companies are concerned, Preminger sees their number rising as long as the IPO window is open. They come, and will continue to come, from a variety of sectors, not just classic high tech. As an example, Preminger cites Beyond Meat, which is developing alternatives to meat, and whose share price has already more than doubled since its IPO in early May.
What are Wall Street investors looking for these days?
"More and more, they are looking at results, and not just the dream. That's certainly the case with Israeli companies, which don't have sales in the billions of dollars, even if some of them have amazing potential. If in the past investors were tolerant about the profit line and EBITDA as long as the company was approaching profitability, now they are looking for a bit more than that. They want greater stability. Although the stock market is on a rising trend, we live in an uncertain environment because of macro-economic instability - the trade war over tariffs and so on - and so investors are looking for companies with less variable growth, and of course won't touch companies that aren't growing substantially. In any event, investors seek a good story and good management."
Published by Globes, Israel business news - en.globes.co.il - on June 3, 2019
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