The Markstone Fund is about to exit from investment house Psagot at "an end-of-season price". Markstone's creditors have approved in principle understandings reached between the struggling fund and Apax Partners for the sale of Markstone's 23.2% stake in Israel's largest investment house for NIS 450 million. Apax Partners, the buyer, managed in Israel by Zehavit Cohen, already holds the remaining 76.8% stake.
The deal being put together values Psagot at NIS 1.9 billion, a long way below the value at which it is recorded in Apax's books (NIS 3.1 billion). As far as the buyer is concerned, this is an opportunity to buy the minority stake in Psagot from a fund in deep financial trouble.
The deterioration in Markstone's situation in the past few years is evidenced by the fact that its managers, Ron Lubash and the late Amir Kess, refused offers from Apax in the past to buy the minority stake in Psagot for a much higher price.
In 2010, Apax bought the controlling stake in Psagot from York Capital at a valuation of NIS 2.7 billion. At the time, Markstone was offered the possibility of joining the deal at a similar valuation, a high and successful one from its point of view, and to sell its holding for NIS 626 million. In today's terms, the amount is higher.
Markstone's managers preferred to wait for further enhancement of Psagot's value, but as time went by, the opposite happened. Not only did Psagot's value not climb, but it became clear that Apax too faced a considerable challenge in achieving a return on its investment. Five years on, Markstone has to cope with a reduction of almost 30% in in the nominal consideration for its holding.
Incidentally, only a year ago Markstone rejected a further offer from Apax at a higher price. As far as is known, Markstone was offered NIS 480 million.
For Apax, the current purchase represents the exploitation of an opportunity to reduce the average price of its ownership of Psagot, and thus improve its chances of a profitable exit in the future. According to sources knowledgeable about the matter, in the current deal Zehavit Cohen priced Marksone's Psagot shares in accordance with Markstone's debts to the banks and financial institutions (its bondholders), leaving Markstone with a small excess of a few million shekels.
Sources at Markstone stress that the consideration from the deal will enable the fund to repay its debts to the banks and bondholders. "There will be no haircut," a source said.
Published by Globes [online], Israel business news - www.globes-online.com - on July 21, 2015
© Copyright of Globes Publisher Itonut (1983) Ltd. 2015