For many years the controlling shareholder in Israeli tactical radar developer RADA Electronic Industries Ltd. (TASE: RADA; Nasdaq: RADA) was Yossi Ben-Shalom's DBSI. The Israeli private investment company bought control of RADA in 2016 for $4 million and in addition, over the years invested less than $13 million in the Netanya-based company. Today RADA announced it is merging with US company Leonardo DRS in a deal valuing the Israeli company at $775 million.
DBSI led a streamlining plan and added value to the company together with Dov Sella who joined as RADA CEO. In six years, RADA's share price has risen more than 2,500% and over the years DBSI sold shares for $80 million. One year ago DBSI ceased to be a party of interest in RADA when its stake fell below 4%, which was worth $23 million before today's merger was reported. In other words DBSI has earned seven-fold returns on its investment.
As of the end of March 2022, RADA's largest shareholders were institutional investors: Israel Phoenix Assurance Ltd. (TASE:PHOE1; PHOE5) held a 8.6% stake, Wellington Management (6.7%) and Franklin Templeton (6%).
Even though DBSI is no longer the controlling shareholder, Ben-Shalom remains chairman of RADA and has been very active. Speaking about the possibility that RADA might be sold, Ben-Shalom recently told "Globes," "RADA is a company that is doing well, is operating in flourishing markets, especially during current times, and beyond that anybody can think what they want."
Speaking to "Globes" today, RADA CEO Dov Sella explained the rationale behind the merger. "Two years ago we understood that our market is growing fast and that sooner or later we would need to strengthen because there would be major competition and we are still small and we began a process with investment bank Evercore back when Covid began. If you would have asked me before who would have been the most logical company for us to connect up with, I would have said Leonardo. We have been working with them for years and they6 are our biggest customer. This merger will be a win-win. We have to take advantage of the momentum in Europe and the world's defense market in which we are a leading player."
On the defense market today in the shadow of the war in Ukraine and increased defense budgets in Europe, Sella said, "And so we are saying that this move is also super-strategic from this angle. In America they have gone in strong and with Leonardo we will be stronger. It begins with Europe where Leonardo Italy has a foothold in Germany, France and Poland. They see our presence in Israel as a big advantage. We are looking globally exactly in these directions."
Ben-Shalom adds, "We are increasing our supply and producing larger and larger radar systems and the more we do this the closer we are getting to the industry giants. When you enter deep waters you want 'aircraft carriers' like Leonardo nearby.
He says that there were other offers for RADA but Leonardo was the ideal offer in terms of finance and synergy.
"There is a first here. To date no Israeli defense company has been acquired by a foreign company. This has major significance for many small Israeli defense companies that could either hold an IPO or be sold to Elbit, which has bought companies, Rafael has bought and Israel Aerospace Industries has bought. We have created here a precedent - another option for Israeli defense companies."
"There is a need for various regulatory approvals, for example defense classification for members of the board. We assume there won't be a problem. The US Department of Defense has approved Israeli companies acquiring American companies and I don't think that they would not approve it the opposite way around."
Recalling the dire state of liquidity that Ben-Shalom found RADA in back in 2016, he says, "We were either smart or stupid but we came in as RADA was set to go bankrupt. It was so close to it that it had no salaries to pay its employees. We had luck but we did a lot of things. The first thing was to bring in management and since then we have done everything together with Dov and the management. We took a company that wasn't a startup but a defense industry company that produced a valuation of several million dollars to something worth about 200 times that today. Yesterday I was in our factory in Beit Shean, which was a wreck six years ago but today is a real treasure. It warms your heart."
Published by Globes, Israel business news - en.globes.co.il - on June 21, 2022.
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