The general assumption is that anything from Israel is not the British cup of tea, while a Wall Street flotation is the holy grail of Israeli companies, particularly in the technology and biomed sectors. The London Stock Exchange is eager to change this view, and the message that Israeli companies are welcome there was the main theme of a conference at the end of February.
The event was initiated and organized by UK Israel Business and sponsored by Deloitte; ERM; Pinsent Masons; Shore Capital and StockWell Communications and partners were London Stock Exchange and Bloomberg. The event came at a time when more Israeli companies than ever are listing on international stock exchanges, and many of them are choosing to do so in London.
"The number of Israeli companies that listed on the London Stock Exchange last year was almost equal to the number that listed on Nasdaq," says UK Israel Business chief executive Hugo Bieber. Six companies were added to the number last year (eleven Israeli companies were floated in New York last year).
The CEOs of five noteworthy companies that listed in London in recent years - Matomy Media Group (LSE:MTMY), Marimedia Ltd. (AIM: MARI), Crossrider Ltd. (AIM:CROS), Plus500 (LSE:PLUS), and XLMedia plc (AIM: XLM) - attended the conference to share their experiences of listing on the London Stock Exchange.
“London is a big market, with high volumes and liquidity,” said online contracts for difference (CFDs) and financial products trading platform Plus500 founder and CEO Gal Haber, when asked why his company (which held a successful IPO) decided to list in London.
You weren’t concerned before listing in London?
“There was concern about a discount relative to New York, but it turned out that the opposite was the case, and we tripled the planned fundraising. As for the IPO participants, 10% were from the US, and the rest were mostly UK investors.”
How did the press treat you?
“Those who could understand the business and the numbers were very kind. There were a few critical reports, but if those reporters had seen the facts and the real numbers - and the secret ingredient of high-tech - they would have changed their minds.”
And what would you say to a start-up entrepreneur from the Technion who wants to list in London?
“The investors here are smart, and will compensate you with good prices in the future,” he says, half laughing, “But if you compare to New York - in terms of the distance, the road show you need to go through, and the figures that the Nasdaq requires - it is fairly hellish there, from this perspective. Of course, the proximity to London makes the process much easier, but there are also drawbacks. The p/e ratio you will get in New York is higher, and Israel is not perceived particularly favorably in the UK, but still, the benefits outweigh the drawbacks.”
Like a reunion
At a panel that sought to clarify what British institutional investors expect from “growth businesses,” the speakers were very precise and clear: They are looking for integrity, organization, good company management, no crazy yields, and no scandals.
The British stock market is still scarred, it seems, from the wave of Israeli IPOs at the end of the last decade, some of which left investors with less than positive impressions, to put it mildly.
Those who had “done it already” gathered for a panel called “Demystifying the new world of digital advertising,” which was reminiscent of a high-school or IDF-unit reunion. There were CEOs and senior executives from companies that were listed over the past year in London: Matomy CEO Ofer Druker, Marimedia CEO Hagai Tal, XLMedia founder and CEO Ory Weihs, and Crossrider VP Mobile Ran (Goldi) Goldshtein. The panel was led by Peter McNally from Shore Capital, which underwrote a number of Israeli IPOs, including some of Teddy Sagi’s.
There are many competitors in your business. Are there entry barriers? What’s to prevent a lot of smaller companies from entering?
Tal: “We are a small slice in a vast ocean. We, the panelists, are not even competitors. Everyone is just trying to increase market share. The changes happen very quickly, and we have to be prepared, and to anticipate the next step.”
Druker: “There are a lot of companies, and there is a lot of money flowing. To start a company is easy, to keep it going and maintain it - that’s the challenge. It’s hard work - sticking around, growing, profiting, within this competitive eco-system. We all basically offer performance - and there is room for everyone, with each additional company bringing more and more advertisers to this platform.”
Goldi: “The costs - data and a vast amount of technology and hardware, it costs millions. And there’s the matter of HR, of course.”
How is it that so many brilliant minds have come out of Israel?
Goldi: “In my opinion, the source is the IDF, and military intelligence - the familiarity with data, and all sorts of clues, and deciphering them.”
Druker: “I attribute the phenomenon to the Israeli survival instinct, to the ability to navigate in the digital world, and adapt to rapid changes. And, most of all, the story behind each company is good and interesting. There are success stories that are inspirational, and we will see this in cyber-security in the future as well.”
Higher returns in the US
Toward the end of the event, the highlight arrives: the “Next generation of Israeli IPOs” panel. Mediated by Louise Wolfson from the law firm Pinsent Masons, the panel included ERM senior partner Nimrod Rosenblum, investment bank Impact Equity (which served as underwriter for the XLMedia IPO) founder Nadav Zohar, Chris Nicholls from Deloitte, and GetTaxi CFO Tal Brener.
As someone who knows the London capital market well, and who helps Israeli companies list in London, Adv. Nimrod Rosenblum said, “In 2014, 17 Israeli companies raised $2.1 billion in IPOs outside of Israel - a 10-year high. Of these companies, six listed in London (plus a number of non-Israeli companies owned by Israelis).”
Rosenblum explained the phenomenon as follows: “The AIM does a great job of attracting smaller Israeli companies, or those that operate in areas in which the London markets have a built-in advantage (ad-tech, binary options, online gaming, and the like).” However, he believes that British investors must be in what else Israel has to offer. “London could attract a much greater number of Israeli companies, if investors here adopted a more active attitude toward investing in companies in early stages - a number of years before the option of IPO becomes realistic, and a more aggressive attitude to leadership and participating in pre-IPO fundraising rounds,” he said.
Rosenblum happily reported, “In light of the fantastic 2014, we see interest from many British investors,” and expressed hope that London would improve its IPO rate relative to New York this year. “The market in London is not less impressive than the market in New York, in terms of size or sophistication, and even exceeds it in terms of international exposure (the US stock market naturally focuses on US companies). If we do it right, it will not be a foregone conclusion that companies like Mobileye will list in New York and not in London.”
Asked when they believe the right time to hold an IPO is, on any stock exchange, and specifically on the AIM, Nadav Zohar said, “It takes a long time to prepare and get ready - three to nine months. Fast-growth companies need to know about the complexity of the process, its length, and its costs.”
Adv. Rosenblum said, “The industry is maturing. The companies have higher-quality managers, who prepare themselves to manage a public company, and the Israeli government also encourages and incentivizes this.”
Zohar noted with concern, “US investors court Israeli companies more. Not enough British investors come to meet companies in Israel. I also don’t know whether British investors fully understand the whole area of defense industry and technology - the importance of the field, including information security and cyber-security.”
On this topic, a question arose on the discount on value, and other issues particular to Israeli companies that reach London markets. Rosenblum admitted, “Israeli companies are frugal, and will not pay anything they don’t have to. On the other hand, they don’t get the valuation they want in London.” For investors interested in technology, this is an opportunity, of course, to “gain exposure at ‘bargain’ prices.”
So what will make an Israeli company choose London or another market to list in? Brener says, “Positive sentiment,” and the market must connect to the company’s story, and to its dream.
“As difficult as it is to say ‘no’ to a check from Google, there is a sense that more Israeli companies are daring to dream big, of an independent, global presence as a publicly traded company,” Rosenblum said, in conclusion. “This, combined with the fact that more and more Israeli managers have gained experience managing public companies, mean that there is a real opportunity for Israel to shift gears and to build long-term companies.”
Published by Globes [online], Israel business news - www.globes-online.com - on March 23, 2015
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