Have you looked at a map of the world recently? Did you notice how small Israel is? Judging by the number of managers and analysts from the CE Unterberg, Towbin investment house who have visited Israel recently, the real money is here. No other country in the world on the receiving end of so many visits by CE Unterberg executives as Israel. A veritable gold rush.
More and more international banks have been taking note of the revival of investment banking in Israel, including underwriting, private placements, and M&A deals. We have recently heard investment banks in Israel predicting more deals in 2005, although not many more. It now seems that the smaller investment houses those making small and medium-sized deals, and which play a secondary role in the really large issues have also caught on to the optimistic spirit.
CE Unterberg, Towbin participated in the flotation of Intel, but its bread and butter is small companies and co-managing large issues. “In my current visit to Israel, I have met with more than fifteen telecommunications, media, and medical device companies,” CE Unterberg VP management committee Mel Lavitt, the number two man in the firm, told “Globes”. “In addition, I’ve met with private companies that are nearing an IPO. We’ll be interested in taking part in their financing rounds. I’ve been coming to Israel regularly for over ten years, and I believe that a change has taken place among entrepreneurs and managers in 2004. Back in May, for example, I saw a lot of optimism. Now, managers are expressing confidence, and that makes a tremendous difference. I prefer managers with confidence to optimistic managers who scatter promises.”
Elron, Elscint, and Scitex
The Israeli market is tailor-made for CE Unterberg. The US investment house specializes in growth companies. It does not compete with Citigroup, Merrill Lynch & Co., Union Bank of Switzerland (UBS), or Lehman Brothers. “Those are large investment houses, and that’s their positioning. We go for what doesn’t show up on their radar screens. We have proven ability in public issues, and a relationship of 20 years standing with Israel,” Lavitt says. Companies advised by CE Unterberg since it began operating in Israel include Elron Electronic Industries (Nasdaq: ELRN; TASE: ELRN), Elscint (NYSE: ELT), and Scitex (Nasdaq: SCIX; TASE: SCIX). CE Unterberg management committee chairman Thomas Unterberg is a director at Scitex, and the bank participated in Scitex’s IPO.
Lavitt says that in IPOs, CE Unterberg is not interested in issues of less than $30-35 million. In PIPE (private investment in public equity), another CE Unterberg specialty, the US firm will agree to lead $10 million deals. In bond and secondary issues, the amounts are usually larger. Lavitt’s motto is “one success lead to another.” His hope is that these amounts will also increase later, although CE Unterberg will remain a niche bank.
Lavitt is a capital market veteran. He began his career in 1959 at Bear Stearns. He joined CE Unterberg, a 70 year-old investment house, in 1992, after managing his own private financial consultancy. Lavitt visits Israel two or three times a year. (“Beyond business, the truth is that I very much enjoy myself here”). Capital market sources say that he and a team of analysts that accompanied him to Israel have met with ECI Telecom (Nasdaq: ECIL); Alvarion (Nasdaq: ALVR; TASE: ALVR); RAD group companies, such as RIT Technologies (Nasdaq: RITT) and Radcom (Nasdaq: RDCM); VocalTec Communications (Nasdaq: VOCL); AudioCodes (Nasdaq: AUDC; TASE: AUDC), and private companies. It is believed that CE Unterberg will soon begin covering new shares.
”Globes”: You say that the market in Israel is reviving. How many deals will you be involved in this year?
Lavitt: ”We’ve made about 20 deals during all the years that I’ve been involved in Israel. Some years, like 2004, we were involved in five deals secondary issues by M-Systems Flash Disk Pioneers (Nasdaq: FLSH), Retalix (Nasdaq: RTLX; TASE: RTLX), Vocaltec, Pharmos (Nasdaq: PARS), and Tower Semiconductor (Nasdaq: TSEM; TASE: TSEM). I don’t expect that we’ll be involved in another deal this year, unless it’s a one-time opportunity. We now have mandates for five deals with various companies. One is a merger deal for an Israeli company, and the other four are primary and secondary Nasdaq issues. CE Unterberg’s exact role in these deals has not been determined, but I believe that we’ll lead at least some of these issues.”
In 1999, CE Unterberg participated in 130 financing rounds worldwide, involving $10.5 billion. The boom then gave way to stagnation. In 2004, volume declined steeply. CE Unterberg took part in 24 issues, in which a total of $659.3 million was raised.
Israel accounted for $252 million of the 2004 total. The largest issue was by M-Systems, which raised $104.5 million. CE Unterberg also counts a $31.1 million issue by Pharmos in late 2003 as part of 2004, bringing the Israeli proportion of the total capital raised worldwide in CE Unterberg’s issues to 43%.
The growth rate is impressive, as shown by the fact that CE Unterberg carried out only one issue in Israel in 2003, in which Pharmos raised $8 million. If you count Electronics for Imaging (Nasdaq: EFII) as an Israeli company, add that company’s $240 million issue to the total.
You say that five deals and issues are in the pipeline. Are they slated for next year?
”Yes. Actually, I’ll be very disappointed if we don’t have at least ten deals in Israel next year, which is real growth, compared with 2004.” When Lavitt made this optimistic declaration, he looked over at CE Unterberg head of Israel investment banking Mark Green, and continued, half-joking, “I’ll be very disappointed if Mark doesn’t bring us ten deals.”
One-man band
Green is a one-man band in Israel. CE Unterberg announced ceremoniously a few months ago the opening of an official branch in Israel, near the Daniel Hotel Herzliya. For now, however, this is more of a ghost office. Other than a secretary, who began her work this month, only Green works there. Green currently works out of the offices of Tamar Technology Ventures, run by Zohar Gilon, whom Lavitt compliments generously, and is planning future growth.
Green is a well-known figure on the Israeli capital market. He has worked as a banker at Citigroup (Smith Barney), where he specialized in semiconductors, data storage, software, and security. He participated in a number of deals during his six years at Citigroup, involving Galileo Technologies, Radware (Nasdaq: RDWR; TASE: RDWR), Radvision (Nasdaq:RVSN; TASE:RVSN), NICE Systems (Nasdaq: NICE; TASE: NICE), and M-Systems, among others.
”We’re right at Israel’s sweet spot,” Green says. “There are a lot of telecommunications, semiconductor, internal security, and healthcare companies here worth billions of dollars. Others will lead the large $60-100 million deals, while we’ll give our added value as co-managers and in research support. We’ll try to take the leading role with smaller companies.” Lavitt says that, five years before Green joined, there were many employees in Israel, but the hoped-for results did not materialize, and the investment house almost completely shut down its activity.
In order to realize just how lively the Israeli market is, and Green’s workload, consider this: Lavitt believes that within six months, CE Unterberg will be doing more deals in Israel than in the US.
That’s an amazing figure.
”You’re right, and Mark is amazing, too. Seriously, though, our activity here creates more revenue than activity of a similar nature in the US, Europe, and other places around the world. We’ve kept a low profile in Israel for several years, but we now feel that we’re in the right place at the right time, and we’re directing a very large effort at the market here. We very much believe in Israel. I’d say it’s our main focus. There’s no other country to which we have such a great commitment. The exception is China, which is awakening. You won’t see, however, many deals with companies from Paris or London. That’s a pity, because the food in those places is good.
”The statistics are not unique to us. I’ll give you an example. There is a large US fund, which has a special fund for international investment. We met with them not long ago, and they told us that half of that fund’s international investment was in Israel. They just can’t find good investments in Europe. Isn’t that amazing? Such a small country is more interesting for investment than all of Europe.”
”Not a mathematical formula”
It’s obvious that CE Unterberg is no charity organization. Its commitment to Israel stems from the dollars that it can make here. Since CE Unterberg is a private firm, there are no figures for its revenue, and Lavitt is unwilling to supply them. According to estimates by market sources, however, CE Unterberg’s revenue from underwriting, private placements, and M&A will exceed $20 million in 2005. That’s not big money, but CE Unterberg believes that they have only scratched the surface of the Israeli market.
Is it harder or easier now to persuade Israeli managers to make deals in general, and with you in particular?
”We definitely have to work harder. Every successful Israeli company has many offers from every investment house with which it has a connection. We have to fight to get business. Mark has very broad support from our management, and we can devote a great deal of attention to every company, which is not the case with the large investment houses. Tom Unterberg is very involved personally. He visits here several times a year, and meets personally with companies. At the same time, we of course have various groups of experts that can work from overseas on a deal. As I said, competition in Israel is very intense, mostly with investment banks like CIBC, which is larger in Israel than we are. SG Cowen, an investment bank named Needham & Co., and William Blair & Co. (which works with Poalim Capital Markets, G.P.). Among the well-known names here, we don’t see any sign of RBC Capital Markets or Oscar Gruss, which stick to trading.”
What advice can you give an Israel company that wants to get your attention?
”First of all, we’re obviously interested in the company’s field of business. What does it do? Does it have a competitive advantage? It has to have something extra a good niche, or a unique technology. Secondly, we’re looking for a good management team with suitable qualifications that can make the company grow. Thirdly, we evaluate competition and the market. There’s no mathematical formula. This is where our experience helps us assess the company.”
We have only spoken about Nasdaq. What about the local capital market companies listed on the Tel Aviv Stock Exchange (TASE), or perhaps provident and pension funds?
”We have no business in provident funds. We don’t plan to enter this field. We’re here already. If there’s an opportunity to provide financial consulting for TASE-listed companies, why not?”
Deals over dinner
CE Unterberg is casting eyes at Israeli venture capital funds, after enjoying fruitful cooperation with Gilon’s Tamar Technology. The latter’s portfolio includes communications, IT, Internet, and life sciences companies. CE Unterberg was involved in raising $37 million for Tamar Technology’s first fund, and is jointly managing it, receiving a share of the management fees. Tamar Technology hopes to raise an additional $100 million by the end of the year, and CE Unterberg plans to play a significant role in that, too.
In order to reach a large number of Israeli venture capital funds, in the hope of generating more business, Lavitt and Green last week invited 30 fund managers and partners to a restaurant in Herzliya. Who knows perhaps they’ll find another Tamar Technology there. Another possibility is that one of one of their portfolio companies will make an exit, and won’t forget who to go to.
Tamar Technology was founded in cooperation with CE Unterberg in 1998. Thomas Unterberg is a member of Tamar Technology’s investment committee. It is believed that he plans to invest personally in the fund. “Zohar is doing an excellent job,” Lavitt says. “We began raising the fund when the market was rising. Zohar quickly realized that the market was becoming unstable. He stopped investing in 2000, and put money aside. Meanwhile, company values fell, and it turned out to have been a smart move. The fund’s portfolio is good now, and I believe that the fund will eventually have a positive return. For each dollar we invested, we’ll get more back, and that’s certainly impressive, at a time when funds have minimal returns, if any.”
Published by Globes [online] -l www.globes.co.il - on October 25, 2003