Much has been said about the TASE's lack of attraction for early stage technology companies seeking to raise capital, as indicated by the almost total absence of offerings by these companies in recent years.
It turns out, however, that while the local stock exchange is still in the doldrums, with ugly quarrels accompanied by intrigues between its leaders and disputes between management and the workers' committee, a promising overseas alternative has emerged for companies interested in become public - the Australian Securities Exchange (ASX). About 10 Israeli technology companies are listed on the ASX, and this number is expected to grow substantially over the coming year. Located in Sidney, ASX is also regarded as important in global terms, being rated among the world's top 10 stock exchanges in size, with many shares and large trading volumes.
Adv. Ian Rostowsky, a partner in the high tech division of the Amit, Pollak, Matalon & Co. law firm, who specializes in offerings by companies on the ASX, among other things, tries to explain this phenomenon, saying, "The Australian investors are willing to take a risk if there is a significant chance on the other side, and that's something that Israeli technology companies coming for an offering can give them."
Rostowsky says, "There is an appetite for risk and they invest a lot in oil and gas, and in commodities. The plunge in energy and commodity prices has substantially reduced investments in these sectors, and has led the pension funds and investment institutions in Australia to search for new investments. The government is supporting high tech within the country, and also through delegations that have come to Israel to look for technologies and study the local high-tech success story."
5.5 million Australian dollar minimum for ASX financing round
Meanwhile, the companies involved are usually relatively small, as are the amounts of money they raise in their offerings, which usually range from several million to tens of millions of Australian dollars (one Australian dollar is worth NIS 3). Rostowsky adds, "In most of the offerings, these companies raise amounts starting at 5.5 million Australian dollars, which is the minimum requirement for an offering, but the amount raised can also be as much as 10 million Australian dollars."
According to Rostowsky, the Israeli companies making offerings in Australia are usually before the sales stage, or have unsubstantial sales, and are expected to make major progress in their business following the offering. An Israeli company with substantial sales that provides investors with a return of a few percent a year is of less interest to investors in Australia looking for companies to make the big jump after the offering, followed by an increase in the return they provide for the investors, who usually hold the share for 6-12 months, and then sell it. The shares held by the company's existing shareholders before the offering are usually blocked for a year, and sometimes two years.
Rostowsky says that these companies also avoid the US market because "the requirements for a Nasdaq offering are much tougher a value of over $100 million and at least $20-30 million in sales, while the costs of an issue and maintaining trade are higher."
The latest example of Israeli activity on the ASX was a major offering (30 million Australian dollars) completed a few months ago by Emefcy, founded by CEO Eytan Levy and CTO Ronen Shechter. Since it was first listed on the ASX in late 2015 via a merger with a stock exchange shell, the Emefcy share has provided investors with a return in excess of 300%.
Rostowsky comments, "Emefcy signals the beginning of the current wave of issues in Australia, after many years in which several Israeli companies entered by way of stock exchange shells. In September, we submitted a prospectus for offerings by two more companies Dragontail Systems and HearMeOut and there are several more offerings for which we're now preparing prospectuses. All in all, I estimate that between 20 and 30 Israeli technology companies will be traded on the ASX within a year."
Rostowsky adds, "Although Emefcy reached the ASX through a stock exchange shell, we're now seeing more companies moving towards an IPO. The difference in the offering method depends on the accompanying underwriter and the offering managers, who under Australian rules have to achieve dispersal among at least 700 shareholders, each of whom holds at least 10,000 shares. If there are companies that are liable to have trouble achieving that, they will enter the ASX through a stock exchange shell, but there is a preference for an IPO, because it's cheaper for a company to raise money that way."
Rostowsky went on to explain that most of the offerings are conducted in a milestones structure. "The company gets money in the issue, and if it meets the milestones set for it, the shareholders who invested in it before the offering get more shares."
While Emefcy deals in energy efficiency for the purpose of water purification, HearMeOut, founded by CEO Moran Chamsi, has developed a social network that operates through speech technology, and Dragontail, started by the owner of the Pizza Hut franchise for Israel, Yehuda Shamai, has developed software for managing deliveries and food. Both of these two companies want to raise 6.5 Australian dollars.
"What you can see from the profile of these companies," Rostowsky says, "is the diversity in activity. They're all technology companies, but you can't single out a specific sector with a bigger share than the others, whether it's water treatment, retail, social media, medical devices, energy, or whatever."
Published by Globes [online], Israel business news - www.globes-online.com - on October 27, 2016
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