FIMI gains in space, aviation holdings lose altitude

EROS satellite

Discount Bank is investing $32m in FIMI-controlled space intelligence solutions company ImageSat International.

Private equity firm FIMI Opportunity Funds has brought in Israel Discount Bank (TASE: DSCT) as an investor in ImageSat International (ISI) , which FIMI controls. Under the agreement, Discount Bank will invest $32 million in ISI in exchange for an allocation of 17% of its shares.

The investment agreement values ISI at $187 million after money. FIMI will continue to control ISI after the deal is completed, with a 44% stake. The remaining shares will be held by Israel Aerospace Industries (38%), Discount Bank (17%), and other shareholders (1%).

The bank will make the investment through its Discount Capital investment arm. FIMI says that ISI will use the investment to complete its new EROS Next Generation satellite network, and to deepen its research and development activity in artificial intelligence and New Space.

ISI was founded 23 years ago by Israel Aerospace Industries and Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT). The company is a global provider of space intelligence solutions based on EROS observation satellites produced by Israel Aerospace Industries. In 2017, FIMI invested $40 million in the company in exchange for a 53.6% stake. That deal valued ISI at $75 million after money, so the gain on paper up until the current deal is 100%.

Two months ago, FIMI announced that it would raise a further $1.2 billion for its new FIMI 7 fund. The fund raising is due to be completed by the end of the year, and will bring the total amount raised by FIMI to $4.4 billion. The firm says that fund raising is proceeding as planned, despite the difficulties caused by the coronavirus pandemic.

One of the sectors hardest hit by the pandemic is aviation, to which FIMI is exposed through its investments in Bet Shemesh Engines Ltd. (TASE: BSEN), TAT Technologies Ltd. (Nasdaq:TATT; TASE:TATTF), and Gilat Satellite Networks Ltd. (Nasdaq: GILT; TASE: GILT).

Bet Shemesh Engines, which produces aero engine parts and refurbishes engines, has lost 63% of its market cap since the beginning of the year, because of the sharp fall in the activity of the world's airlines and in their aircraft procurement. The fall in the company's share price has reduced its market cap to just NIS 440 million, and the value of FIMI's stake has fallen accordingly, to NIS 153 million ($45 million). Bet Shemesh Engines has laid off about 12% of its workforce in the past few weeks.

Tat Technologies makes aircraft parts such as heat exchangers and cooling systems. FIMI entered into a second round of investment in the company seven years ago when it bought control of it for NIS 125 million, in a deal that valued Tat Technologies at NIS 233 million. So far this year, Tat Technologies' market cap has fallen 27%, making it a 66% decline in three years. Its market cap is currently NIS 115 million, and FIMI's stake is worth just NIS 68 million.

The aviation sector is also the main reason for the sharp decline in first quarter sales by Gilat Satelite Networks, in which FIMI has a 34% stake. The company, which among other things sells satellite communications systems for aircraft, presented a 23% drop in revenue in the first quarter to $47.7 million and switched to a $11.8 million loss, which compares with a profit of $2.8 million in the corresponding quarter of 2019.

The deterioration in Gilat's performance led to the cancellation of the deal for the acquisition of the company by US-based Comtech. The deal, signed in January this year, valued Gilat at over $500 million.

As a result of these development, Gilat's share price has fallen by nearly 50% since it signed the acquisition deal. The company's market cap is currently around NIS 1 billion, making FIMI's stake worth NIS 340 million. The sale of the company was to have brought FIMI a return of 2.5 times or more on its investment.

Published by Globes, Israel business news - en.globes.co.il - on July 19, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

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