Without fuss, the IPO of ECI subsidiary ECtel was completed on Wall Street on Monday. The company raised $42 million at a value of $187 million after money. Hambrecht and Quist led the issue, with Salomon Smith Barney and Oppenheimer as co-managers.
ECtel issued 3.5 million new shares at a price of $12 per share, at the lower end of the planned $12-14 range. During yesterday’s trading, the share did not turn on a dazzling performance, and did not manage to go past the issue price. However, the volume of trading in the share was very high - nine million changed hands.
Parent company ECI’s stock did not respond much to the news of the IPO, closing at $27.6 on Tuesday, 0.4% up on the previous day’s close.
Following the issue, ECI’s stake in ECtel fell from 100% to 77.5%, with its present holding worth some $145 million. ECI is expected to post a capital gain of $30 million.
ECtel was set up within ECI nine years ago. It deals in monitoring and management of network transmission quality. Its products enable communications network operators to control quality of service, and detect and prevent fraud in cellular systems, dialing cards, and other services, as well as to bill other networks for traffic transmitted via their own.
Among ECtel’s customers are MCI, British Telecom, Deutsche Telekom, Qwest, and Pele-Phone.
ECtel employs 200 people, 130 of them in Israel. Its 1998 revenue showed a 44% improvement on the previous year, and totaled $29 million. In the current year, the growth trend has continued, with first half revenue of $19.3 million. 45% higher than in the corresponding period last year. Net profit for the half year was $1.5 million, compared with $705,ooo for the whole of 1998.
The decision to float ECtel seems to have been the result of a new policy at ECI aimed at improving value and winning back investor confidence, which has been dented by its unflattering results this year. In this context, ECI recently sold its holding in Telegate to Terayon, a sale which yielded a capital gain of $22-30 million. Together with the $30 million gain from the ECtel issue, ECI will report handsome capital gains of $52-60 million.
Published by Israel's Business Arena on October 27, 1999