It began a week ago with a report in the “Ma’ariv” Hebrew daily, and it ended last night. Paradigm Geophysical (Nasdaq: PGEO), which provides software and services for the oil and gas exploration industry, was sold to US investment group Fox Paine & Co. for $100 million ($5.15 per share).
The acquisition of Israeli company Paradigm appears to contradict the Israeli economy’s recent low rating and reputation. Ariel Malik, CEO of Reliance Capital, which accompanied the deal and advised Fox Paine, sounds optimistic.
”The foreign investors I work with will always be interested in companies which, like Paradigm Geophysical, have good management, unique technology, and an global marketing setup,” Malik asserts. “Actually, it’s clear that the entry into Israel of an investment fund with the size of Fox Paine is a vote of confidence in the Israeli economy and its strength. We founded Reliance Capital in order to make deals like the one with Paradigm Geophysical, and we now sense greater interest on the part of the foreign investors.
”We are now working simultaneously on several mergers and acquisitions in the hundreds of millions of dollars. All involve foreign investors wanting to invest in Israel.”
Regarding the current deal, Malik says, “The initial contact between Fox Paine and Paradigm Geophysical was made several months ago, just after Reliance Capital was set up. Foreign companies like Fox Paine expressed interest in investing in Israeli companies.”
Reliance Capital is controlled by foreign investors. The company deals in mergers and acquisitions, investments in public companies, and private placements for public companies. In Israel, it represents European and US investments companies and venture capital funds.
”The negotiations were very difficult,” says Paradigm Geophysical chairman and CEO Eldad Weiss. “They think very differently than we do. They come from a very tough US system. Up until a week or two ago, we were sometimes convinced that nothing would happen, and Paradigm Geophysical wouldn’t be sold. The big gaps were closed, however, and in the last few days, we saw we were headed for a deal.
”In any case, this deal is a vote of confidence in the company’s employees, products, and customer relations. Fox Paine will help us achieve our goal of providing leading technology to our customers, expanding through acquisitions, and offering a greater variety of our products and services in the oil and gas exploration industry. They were enthusiastic about the company’s current management team, and regard our ability to make acquisitions as a great advantage. They’re aware that in order to achieve a high growth rate, you have to go on acquiring companies, as we have done up until now.”
”Globes”: You actually could have gone on without them.
Weiss: ”In order to make acquisitions, you need a good share. Our share isn’t liquid enough, and doesn’t reflect the company’s real value. We need a concern like Fox Paine that believes in our vision in order to go on growing through acquisitions. They are an investment group of a size that has never been in Israel, and their acquisition of Paradigm Geophysical is a vote of confidence in both the company and Israel. Fox Paine has $1.5 billion in liquid assets and $6 billion in investments. We believe that with their financial ability and connections, our development will be dramatic.”
What does that mean in numbers?
”That means reaching an annual turnover of $200-300 million. That was always our ambition; now it will be easier. Fox Paine supports our vision. That’s what they really bought.”
The deal was at a fitting price. After all $5.15 per share isn’t sky high. It is a 15% premium on the market price and below your IPO price from four years ago.
”When we began the process, the share was at $3.50. The premium on that price is quite substantial. Keep in mind that this was in cash. We might have gotten more in a share swap.”
Some investors bought your shares at a higher price than in the acquisition. Did they support the deal?
”We notified the shareholders of the deal, and 43% signed it. Not many investors came in at a higher price than for the acquisition. You have to look at the way things are now. Even if some investors came in at a higher price, it doesn’t mean they shouldn’t take an exit at the acquisition price. Maybe I’m naive, but I really believe they wanted the best for the company, and the Fox Paine connection is the best for the company.”
Will the company change, following the acquisition?
”We were actually acquired by a Dutch company set up for the purpose. I don’t believe there’ll be any changes in Paradigm Geophysical itself, except for positive ones. They’ve promised to keep operations in Israel and expressed confidence in management.”
But they’re likely to transfer the local headquarters overseas.
”They said that despite the situation, they want to invest in Israel. Operations will be kept in Israel.”
Published by Globes [online] - www.globes.co.il - on May 23, 2002