Israeli technology company Retalix was sold to NCR, its US competitor, for $800 million in late 2012. The chief beneficiary of this exit was the Alpha Group, a group composed of several founders of Amdocs that held a controlling interest in Retalix at the time (together with the FIMI Fund). After improving the company, the group sold its share, earning a profit of over 100% on its investment.
The Alpha Group has made no investments since selling Retalix, but it appears that the group still retains an appetite for such investments. Sources inform "Globes" that the group held negotiations until several days ago with the Formula Systems software holding company for the purchase of one of its portfolio companies - apparently Sapiens, which develops insurance industry software - in a transaction reflecting a market cap of $420 million (a 20% premium on the market value). Contacts between the parties were recently discontinued, apparently because of an inability to agree on a share price for the transaction. Formula and the Alpha Group declined to comment.
The Alpha Group that invested in Retalix included Amdocs CEO Eli Gelman, Avinoam Naor, Boaz Dotan, Nehemia Lemelbaum, and Mario Segal. Its current composition is probably slightly different, but its basic core is similar.
Formula is under no pressure to sell assets. It has $100 million in the bank, and recently announced that it had been granted a NIS 200 million private loan by Menorah Insurance. For years, the company, managed by CEO Guy Bernstein, has held shares in Sapiens, Magic (a developer of software development and integration tools), and Matrix Solutions (which supplies computer services), and is looking for additional acquisition opportunities.
The company, which today announced the distribution of a NIS 24 million dividend, is controlled by the Asseco Group from Poland with a 46.4% share.
"Big investments and a big upside"
Sapiens is dual-listed on the secondary Nasdaq listing and on the TASE, trading at $8 per share, reflecting a market cap of $371 million. Formula holds 47.7% of Sapiens's share capital with a current value of $179 million. The Sapiens share has more than doubled in price over the past two years, reaching $8.50, and has been at its highest level in the past 13 years since last March. Managed by Roni Al-Dor under guidance of Formula, Sapiens has undergone some interesting strategic changes. From a company that had to make a debt arrangement with its bondholders, including a delay in the repayment of some of the debt (in 2006), Sapiens has become a growing company that makes acquisitions.
Three years ago, Sapiens conducted a large-scale merger, absorbing two competing veteran Israeli companies, Idit and FIS, in a $70 million deal consisting mostly of shares. The merger was completed successfully, and the company's sales turnover has since grown significantly. There is still room for improvement in profit, however.
Sapiens's revenue totaled $135 million in 2013, 19% more than in 2012, and almost double its 2011 revenue, which included only part of the merged companies. On the other hand, its profit margins were down: Sapiens's non-GAAP operation profit margin was 10.4% in 2013, compared with 13.3% IN 2012. Its annual non-GAAP net profit totaled $14 million, down 4.6%, compared with 2012.
Commenting on these figures in a "Globes" interview several months ago, Al-Dor said, "Since Sapiens also implements the solution with the customer, any growth requires additional personnel. It takes a long time to train personnel, and this affects our profit. Furthermore, we are investing in development, for example in a life insurance product that required a much more significant upgrade than we had anticipated. The investments are big, but so is the upside. When you add it all up that's our 'excuse' for what is happening to our profit."
The Alpha Group, which is looking for a chance to improve the company in which it is investing, rather than being a merely passive investor, is also likely to step in here. A company that cannot be improved is of no interest to investors like the Alpha Group.
Published by Globes [online], Israel business news - www.globes-online.com - on June 25, 2014
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