The Tel Aviv Stock Exchange (TASE) continues to show signs of life. Following the Mediterranean Towers and Skyline equity IPOs, two new draft prospectuses were filed with the Tel Aviv Stock Exchange (TASE), by Telrad and Ashrtom. The two companies have asked to issue their stocks based on their 2013 annual reports, as did a third company Inrom Industries Ltd., which published a draft prospectus last week.
Communications equipment company Telrad Networks submitted a draft prospectus to raise NIS 100 million in shares and options, according to a company valuation of NIS 380-400 million, after money. Founded in 1951, the company sells, supports, and maintains communications equipment, and provides planning, construction, integration, support, and maintenance services for IT communications systems.
The main shareholder in crisis-prone Telrad is Yuval Cohen’s private equity firm Fortissimo Capital, which holds 87.6% of the company’s shares (79.3%, fully diluted). Fortissimo initially invested in Telrad in 2004, and increased its holding in 2009, when it bought the controlling share from Koor Industries Ltd. In total, Fortissimo has invested only $20 million in Telrad, at a company valuation of just NIS 100 million. Now, after an impressive recovery process, it is launching an IPO at a valuation four times higher.
Today, Koor holds only 10% of Telrad’s shares (9.1%, fully diluted), and Telrad CEO Ran Bukshpan holds mature, non-transferrable options, representing 5.4% of company value, fully diluted.
Poalim Ventures Group members also hold Telrad shares, but are not significant stakeholders. At this stage, it is still not known whether the IPO will include an offer for sale, and estimates are that if Fortissimo chooses to sell, it will sell only a portion of its shares, at an estimated value of NIS 10-20 million.
Growth and increased profitability
Fortissimo initially invested in 2004, and increased its holding in Telrad over time, as the company underwent various crises. Under Fortissimo’s management, Telrad shifted its focus, and in 2009-2010 underwent an “all-encompassing recovery process,” which included reducing expenses, restructuring debt, switching suppliers, reducing the number of employees, and overall salary cuts. This followed the collapse of Nortel, which was one of the largest communications equipment suppliers in the world, and was a major client, accounting for more than 50% of Telrad’s sales (Nortel once held shares in Telrad as well).
At the end of 2013, the company had $10 million in bank loans, $16.5 million in loans from a financial institution, and $30.8 million in shareholders' loans. The prospectus states that the two most recent loans were repaid from the proceeds of real estate sales, and that current bank loans total $7.8 million.
In recent years, Telrad recorded double-digit growth in revenue, and, in 2013, revenue totaled $77.3 million. This is despite the sharp drop in landline equipment sales, which is considered to be aging technology. Profitability dropped in 2012 compared with 2011, but a there was a significant improvement in 2013, when the company ended the year with an operating profit of $3.6 million, and a net profit of $3.3 million.
At the end of 2013, the company had negative shareholders’ equity of $11.2 million, compared with $15.3 million in 2012. The company provides non-audited data, according to which, following the sale of the real estate property, the company’s shareholders’ equity stands at $ 13.5 million.
The highest paid Telrad employee is subsidiary Magalcom CEO Zeev Shechter, who earns $631,000 (including a 2012-2013 bonus). Telrad CEO Ran Bukshpan earns $376,000 a year, and did not receive bonuses. Company executives did not receive any stock-based payments. Fortissimo is entitled to management fees totaling 1% of annual revenue, but the deal will be cancelled with the IPO, and will be replaced with a consulting deal for $78,000 a year.
Published by Globes [online], Israel business news - www.globes-online.com - on May 8, 2014
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