A veteran Israeli technology company on Wall Street has come to the end of the road. Cybersecurity company Cyren (Nasdaq: CYRN) announced last week that it was laying off 121 employees, representing its entire workforce. The company said that it was doing so because of the state of the market and the difficulty in raising further capital.
"In the absence of additional sources of liquidity, management anticipates that the Company's existing cash and projected cash flows from operations will not be sufficient to meet the Company's working capital needs in the near term," Cyren’s announcement said.
It added that "The Company continues to assess all of its strategic options, including potential asset monetization or liquidation. In the event that the Company determines that its liquidity will not allow it to meet its obligations as they become due or that additional sources of liquidity will not be available, the Company may need to pursue options available under applicable insolvency laws, including winding up its operations."
Cyren reaches this situation with a negligible market cap. After the report that it would dismiss its workforce, its share price fell by 27%, leaving it with a market cap of just $4.3 million. Over the past five years, it has lost 98% of its value. Its peak came a long time before that, during the do.com bubble.
In October 2000, the company’s stock (it was then known as Commtouch) was traded at $66, giving it a market cap of over $1 billion. Adjusted for the reverse share splits subsequently carried out by Cyren, the value of the stock at that time was nearly $4,000, which compares with a current price of $0.54, which means that 99.9% of its value was wiped out.
Commtouch was founded in the winter of 1991. Those were the days of the First Gulf War, when rockets were fired at Israel from Iraq. The company founders were Gideon Mantel, Dr. Nahum Sharfman, and Amir Lev. It developed e-mail software, and at the end of the 1990s it began to provide e-mail storage services. In 1999, the company was floated on Nasdaq, and a few years later it was listed on the Tel Aviv Stock Exchange as well, but it was delisted in 2019.
In 2009, after eighteen years of activity without scoring any dizzying success, the company again changed direction, and went into cloud-based services. "Commtouch could become a business earning tens of millions of dollars profit annually," Mantel, then chairperson and CEO of the company, told "Globes" at the time.
He added that the company had made a comeback from a state of "clinical death" in 2003 to being profitable by 2009. In the following years, it carried out several acquisitions in anti-virus and security, and changed its name from Commtouch to Cyren. In that period, it was headed by Lior Samuelson, who said in an interview with "Globes": "Our surfing security solution is one of the best on the market. There is no other company providing a pure surfing security solution via the cloud."
Even under its new name, Cyren did not succeed in arousing enthusiasm among investors in New York and Tel Aviv. In 2017, however, someone spotted an opportunity in the stock: US private equity firm Warburg Pincus signed a strategic investment agreement with Cyren, buying a 21.3% stake for $19.6 million.
The firm sought to increase its holding in Cyren, and under Israeli corporate law it was required to make an offer to purchase, with the aim of reaching a 75% holding at the end of the process. The offer was made at a premium over the market price, but did not win full consent, after the share price rose sharply during the offer period. It may be that shareholders thought at the time that if a firm like Warburg Pincus saw an opportunity in investment in Cyren, it was worth holding on and benefitting from the unlocking of value in the future.
At any rate, Warburg Pincus increased its stake to about half, at a further investment of $43 million. Samuelson said that the firm would add value to the company with its experience and connections, and would enable Cyren "to compete and to fulfil our dreams, to be one of the leading companies in our market."
Later on, despite posting a loss on paper on its investment, Warburg Pincus injected a further $8 million into the company in a rights issue in 2019. Altogether, the firm invested some $70 million in Cyren shares, an investment now worth less than $1 million.
Other holdings in Israel
Warburg Pincus was founded in 1966. It is active in fourteen countries and manages assets of over $85 billion. Although Cyren was founded as an Israeli company, it is registered in the US and traded on Nasdaq, and the investment in it from Warburg Pincus was carried out from the US. The firm has had other, much larger and more successful, investments in Israel. Among other things, in the past it held stakes in Ness Technologies and Alliance Tire Company.
Warburg Pincus’s most significant investment in Israel at present is in credit card company Max (formerly Leumi Card). It bought control of Max in 2018, completing the deal in February 2019 at a valuation for Max of NIS 1.95 billion. Last year, Warburg Pincus announced the sale of Max to Clal Insurance at a valuation of NIS 2.47 billion, 27% more than it had paid five years earlier. Since the acquisition was highly leveraged, the return from the sale (which has not yet been completed) on the capital invested will be higher.
$9 million burned in January-September 2022
To return to Cyren: in the first three quarters of 2022, its revenue totaled $17.3 million, of which $5.8 million was in the third quarter.
On a GAAP basis, the company posted an operating loss of $18.2 million, 16% higher than in the corresponding period of 2021. On the bottom line, the net loss grew 61%, to $25 million.
The liquidity difficulties that led to the dismissal of the workforce came after the company had burned cash of $9 million in January-September 2022 (less than the $12.5 billion burned in the corresponding period of 2021). At the end of the third quarter of last year, Cyren had cash of $13.5 million, after completing the sale of part of its business for $9.6 million last summer.
The company has long-term debt to bondholders of $8.7 million. When it released its third quarter results, Cyren estimated that it would continue to report losses, and that it would be able to continue to finance its activity from its cash, and through cutting operating costs, selling assets, and perhaps raising debt or equity. It cumulative deficit at the end of the third quarter of 2022 was $297 million.
Published by Globes, Israel business news - en.globes.co.il - on February 6, 2023.
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