This is the stuff business legends are made of. An Israel telecommunications firm with its main offices in Rosh Ha’ayin and anticipated 1999 sales of $25 million, is trading on the London stock exchange at a value of $1.7 billion, have seen its shares soar by more than 1,800% over the past year. The company’s general manager, and until a few months ago its chief scientist, is a dentist by profession. Its business consultant is a former Israeli premier.
Business legends have been two-a-penny in recent years, especially since the high-tech revolution descended on us.
Even so, something about BATM’s story sets it apart.
Hoary high-tech veterans, who have lived through quite a few stock exchange miracles, wonder what exactly is going on here. Why is so high a market value reserved for BATM in particular? Because of exceptional marketing capability? Sheer luck? Or products that are truly smart and ahead of their time?
We may now add some more exotic ingredients to this brew. We can throw in the somewhat vague terms used by BATM general manager Dr. Zvi Marom in speaking of the company’s products and technological and business plans. We can include the choice of London’s AIM rather than the usual high-tech choice of Wall Street for share flotation, and of Benjamin Netanyahu (of all people) as business consultant, and the BATM story really sounds entrancing.
Gershon Baras, who partnered Marom in BATM until two years ago, has said of him more than once: "Marom is a highly talented man. He reads fast and has a phenomenal memory. He has the ability to constantly feed the market new information and thus create a lever. He is also adept at charming people. After a while with him, people are prepared to take what he says as gospel".
The babysitter who became CEO
The business story of Marom and BATM is bound up, from the outset, with Baras, owner of "G. Baras", a company manufacturing cables and electrical wires. They first met when Marom, bereaved of his father at age 13, acted as a babysitter in the Baras home. Deeply impressed with the youngster, Baras took to treating him like a family member.
At the end of 1986, Marom was heading a project at the Technological Education Centre. He once complained to Baras that all employees in his immediate environment were being promoted while he alone remained behind. Baras, to whom Marom was almost like a son, proposed that they set up a joint company from which Marom would have a car, a salary, and 49% of the shares. They called it BATM (Baras Advanced Technologies Marom).
The business ideas that Marom first conceived for BATM were not always successful, and the partners started looking in different directions. In the late eighties, they decided to buy the products of North Hills, which engaged in the production of miniature transformers (balloons) for data communications and market them along with electricity and cable products.
North Hills quickly started raising its product prices, and Marom and Baras decided to manufacture the same products themselves. In 1992, BATM, which was producing the miniature transformer, also set up hubs, a sort of traffic light for channelling data communications with an organisation. It obtained the components in Taiwan and other East Asian countries, and modified and then resold them as BATM products. Production took place at a warehouse Baras had in Petah Tikva, employing mainly minimum wage new immigrants from the former USSR. Not exactly high-tech, the products were sold at home and abroad. Low labour costs enabled the company to compete with products from other countries.
BATM developed and its coffers started to fill up even though it was still using the bookkeeping and secretarial services and the motor vehicles of G. Baras. Marom, meanwhile was becoming increasingly self-confident. He and Baras started to have differences of opinion.
Relations between the two took a turn for the worse in 1994. Tired of the incessant infighting, Baras sought to float the company and recoup his investments. The two men approached Dovrat Shrem investment firm Leader, but the Israeli stock exchange at the time was losing altitude and it was unrealistic to issue.
Salvation was offered by Ron Barry, economist and CPA, who knew an American attorney named Avraham Kelman who was working in Britain. Kelman advised Barry to issue BATM on London’s secondary market, AIM.
Barry prepared a presentation for BATM and introduced them to London’s Shore Capital investment house, owned by two Jewish brothers (Capital’s directors currently include Avraham Suari, CPA and Yitzhak Shrem, who joined in the past year).
David Goldman, an elderly Jew who had made his name and fortune with the successful software company Sage, was appointed BATM chairman. Goldman was promised two flights tickets to come and attend Board of Directors meetings in Israel, enabling him to visit his children, who live in this country, at the same time. Other directors appointed were Dr. Danny Katznelson, likewise a dentist, who granted Marom a standing power of attorney, Barry’s father, who had retired from Mizrahi Bank.
The IPO finally took place, and BATM managed to raise $12.5 million at a company value of $60 million. BATM made two acquisitions in Israel. It currently holds 19% of the shares of Shiron, a start-up that develops two-way satellite Internet communications products similar to existing products of Gilat Satellites and Hughes Electronics (at this stage, there are still no Internet companies providing satellite communication based access services).
BATM’s next acquisition, of NetWiz for $1.8 million, took place in February 1999. NetWiz is an Israeli start-up managed by Ofer Harpak and founded by a number of Fibronics graduates. For several years, it made no attempt to manufacture switches. It was succeeding in the technical aspect of its activity, but not as well in marketing. Arnon Rubinstein, a Shore Capital analyst covering BATM, sees the NetWiz acquisition as a snap. He believes BATM would have paid ten times as much to purchase a similar company.
BATM recently entered as a minority (6.5%) shareholder into Lynx Photonics a start-up engaged in the development of an optic switching product line.
The guy who used to be a partner thought we would fail
Tired of recurrent spats, Baras decided to sell his shares and leave the company. David Goldman and a number of institutional bodies purchased Baras’s share package for $28 million at an average per share price of 1.31 pounds sterling. Today, the share is hovering in the vicinity of 30 pounds.
Marom describes Baras’ departure somewhat more laconically. "In 1996, we went in for a capital raising exercise on the London AIM exchange", he recalls. "A year later, the guy who used to be a partner in the company thought it would not succeed and was bought out by David Goldman, a serious British investor who founded the Sage software company".
Marom’s dry account of BATM’s phenomenal success seems to shrug it off as a foregone conclusion, nothing to be surprised or astonished about. "In 1992, he recalls, "we founded BATM as a company that had not raised capital anywhere, and produced Me Too products. We improved the products’ credibility points and invested the accruing cash in research and development.
"In 1996 we floated on the London AIM. I don’t try to outsmart people. It took some time. The British, who had had unpleasant experiences with other bright sparks, realised that this time they were dealing with a serious company and that we intended to work seriously and deliver on our promises. Even the big boys of the communications world understood that we were serious".
Maybe you are just a good marketing man?
"Anything, any idea, takes skill to sell. We are not a typical company. We came to London with a strange tale, but I knew that if we came with a credible tale, we would succeed. British analysts are not small children, they are very great experts and professionals. They sat here and studied us for two or three days. They wanted to see that we were doing what we said we were doing. They know it’s very difficult for an industrial company to do what it says it wants to do".
Marom refuses to show the analysts’ reports. "I can’t give you a British analyst’s report, because they don’t want to give it to Israeli reporters". Arnon Rubinstein of Shore capital, on the other hand, had no problem showing us his reports on the company.
Shifting the microcosm
Attempting to get Marom to say what products BATM is currently developing are met, on the whole, with generalities regarding his high-tech vision and largely couched in professional jargon.
"Since our technologies have interesting IP (Internet Protocol) capabilities", Marom says, "we could, in a utopian world, shift the microcosm from place to place. Talking to me, you are in a particular microcosm. That is how the human animal is built. To shift the microcosm, something new called bandwidth is needed. You can’t smell or taste it, but it exists. It’s the ‘Fifth Element’. The minute it can be implemented, I want to have an impregnable company. It doesn’t matter if, en route, we have to build this or that device. What is certain is that I know exactly where I am going. The Israeli high-tech community, by contrast, has no vision.
"We think it will all end in a world with no bandwidth limits, and where the major communications providers will be bandwidth wholesalers. People will pay for this service, and it is toward that world that I am guiding the company. We are at the stage of building large IP ‘pumps’. Everyone else is building pipelines and I am building pumps.
"Globes": But what product do you manufacture?
"Our activity is based on network switching products, on the borderline between WAN and the city - meaning to local networks (within the organisation) or to WAN (regional) networks. We have lots of unique elements such as high-density optics, strong engines and a great deal of creativity. The new generation of Titan 6, which we will be showing at Telecom Geneva, is a revolutionary concept that facilitates the construction of networks with bandwidths of 250 gigabit and more, of non-blocking information. This is a special product and I will undertake that it is unique. It’s not that I think we are so smart, but there is no doubt that our product is very special. We are going to market with products that other people know how to build, but we do it better".
Who are your competitors?
"Cisco is an outstanding competitor, and Lucent is both a competitor and a customer".
Why would Lucent purchase equipment from BATM?
"Our equipment is better than that of the competition, so why wouldn’t they?"
What’s special about your equipment?
"We can send information on an optic fiber at costs approximating the costs of copper (like telephone wires), while the market we address is measured in tens of millions of dollars and upward. Also, we’re working on the development of optic switching, and developing VDSL equipment, and in that field, in my opinion, we are more advanced than Orckit".
An explanation is in order here. ADSL modems are fast Internet communication modems on ordinary telephone lines, operating at rates of 8 megabits per second, up to 300 times the present speed of Internet on an ordinary modem. The Dataquest research company ranked Orckit as the world’s leader in this technology. VDSL is a technology that enables communications via digital modems on ordinary telephone wires at speeds of up to 52 Mbps for purposes of video conferencing, etc. Here, too, Orckit is considered a world leader.
Silly to issue in New York
BATM, as stated, was floated on the London AIM, not a routine move for high-tech companies, the great majority of which are traded in New York, as its stock exchange is seen as central to the field (last summer, as the BATM share advanced, it switched to London’s primary market).
Maybe you simply wanted to benefit from the absence from the British market of parallel companies such as Redback or Juniper Networks?
"I’m surprised at you. You work for an economic newspaper and you don’t know that London is 30% larger than New York?"
Is the AIM bigger than the NASDAQ?
"The advantages of the British stock exchange are its geographic proximity and easier bookkeeping, that includes a six monthly report on business results, thus smoothing the transition from start-up to company status.
I think there are lots of other companies that would be better off not issuing on a stock exchange a ten-hour flight from here. If a manager frequently has to fly abroad, the result is managerial inattention in the company".
Your IPO was managed by Shore capital, a fairly anonymous body.
"It’s not a large investment house, but they are quick. Apart from which, a large body takes large commissions".
How many employees does BATM have today?
"A hundred and seventy, one hundred of whom are in research and development, not including universities".
With a 1998 development budget of $1.5 million, and $1.2 million in the first half of 1999, how do you manage to payroll so many engineers and develop innovative products?
"Our R&D expenses are in fact low, but they do not cover the universities. Today we are partners in a number of research projects being carried out in universities worldwide, including Bristol University, Bath, UPMC and the Swiss Cern research institute. People working in those institutions are not suspected of foolishness".
Regarding the Cern Research Institute, Marom says BATM supplied T3/E3 ultra-rapid communications equipment, operating at rates of 45 Mbps and an ATM for the Institute’s subterranean particles accelerator "which conducts atom-level experiments". Analyst Rubinstein’s March 1999 report says the company taking part in the project is NetWiz acquired by BATM about a month early.
Competing companies also signed co-operation agreements and they too were asked to send switches for the large scientific project in Cern, but they are not managing to make much media hype out of it.
"What characterises BATM is that we focus on application and not engineering, and our products therefore combine science and technology, enabling us to survive quite nicely. Look, the Nobel prizewinners at Cern are no fools. I too, in my student days, argued that the next century would be the photonics century, and now we are at the stage where science is becoming technology".
Who is your chief scientist?
"Ofer Harpak, who was general manager of NetWiz which we acquired at the beginning of the year".
And who was chief scientist before him?
"I was".
Netanyahu isn’t a gimmick
Shortly after Benjamin Netanyahu’s electoral defeat I and his withdrawal from political life, BATM announced that he would be joining the company as business advisor. Marom claims this is no gimmick. "If I were selling products mainly to the Israeli market, it would be a gimmick. But I operate in international markets, so it makes no difference", he says.
What will Netanyahu’s job in the company be?
"Bibi is no longer a politician. He is studying the material and working".
Do you meet often?
"We meet when necessary. He is learning and taking an interest and that is fine. I hope there will be more talented people from politics heading for industry, that will be better for us all".
BATM’s market value is $1.3 billion (since the interview, it has soared to $1.7 billion). What sales figure are you expecting in 1999?
"As forecast by shore Capital’s economists, sales will amount to $25 million".
That gives you an astronomical sales multiple, like that of leading technology companies such as Juniper NetWorks and Redback.
"No. Less. You really understand nothing about technology, do you? The multiple is of no significance. And you forget that we are profitable. Cerent sells some $10 million and loses $60 million. As long as we have our capabilities and our growth, investor will appreciate it. If our technologies vanish, the graph (of the share) will fall, even if I sell at $200 million".
At the current share price, you are one of Israel's wealthiest men.
"You journalists, it’s unbelievable…
"I am not driven by market price. I am not an Internet company. We are a company with a clear vision, and we are implementing it. Do you want to know why our shares are high in Britain and not in Israel? Because a "Financial Times" correspondent in England does some serious research work before he comes to a meeting. You see, there is no other product like ours, and no one else is building one".
Gilat, Check Point and I
What is your most outstanding attribute that has helped the company succeed?
"I am always learning, and I don’t talk generalities. Of course, that doesn’t guarantee anything, either, but it’s a good start. Israel has a stratum of good managers with capabilities that our national character can’t overcome. These managers build companies like Gilat and Check Point, and I am one of them".
In your recent press conference, you said you were planning some co-operative ventures, inter alia with CheckPoint, Comverse and RAD Bynet. What connection do your products have with Comverse, which develops voice boxes for telephony and cellular companies?
"We think that, in certain fields, there is room for co-operation with companies such as Comverse and Check Point. With Bynet we are already co-operating, and Avnet (also of the RAD Bynet group) markets our products in Israel".
And your co-operation with the 3M concern?
"That is a US company that is conducting an extensive research into dense optics, they are world leaders in their field. Our vision is to replace the copper wires in optic cables, and that is where it is tangential to the 3M vision. When it transpires that there was a bid demand for optics, their scientists realised that combining forces with us would result in a win-win situation. That was the reason for forming the consortium in which Siemens and Kroning are partners. We showed them what we have got, and they decided to go with us".
Published by Israel's Business Arena October 26, 1999