Lively IPO activity has been recorded in recent months on the First North Stock Exchange - the secondary exchange of the Scandinavian stock exchanges, which are owned by Nasdaq, and which is designed for growth companies.
Since the start of 2017, the stock exchange located in Sweden has held 44 offerings, more than in all of 2016. According to the figures provided by First North, the average company raises about €10 million in capital on First North, an amount which would suit IPOs by Israeli companies that want to go public but are still too small for the US market.
Despite that, so far only one Israeli company has listed for trading on First North - the gaming company Aspire Global whose major shareholders include businessmen Pini Zahavi and Eli Azur. Aspire went public in July through an IPO and offer to purchase totaling around $40 million overall at a company valuation of $155 million. Since then the share has risen by about 36%.
Of course, if it was up to First North's management, Aspire Global would be the first in a range of Israeli companies holding an IPO and trading on First North. Adam Kostyal, Nasdaq senior vice president of listing services Europe was in Israel last week to take part in a conference and meet with local companies. Speaking to "Globes" he said, "We are speaking with a number of Israeli companies in our pipeline and in particular in technology and healthcare." Nevertheless, he does not believe that there will be any more Israeli IPOs on First North in 2017.
"Aspire Global is an interesting case," says Kostyal. "When the company decided to hold an IPO it checked out all the alternatives in Europe. The AlM (London's secondary market) allows more liquidity than growth and due to Brexit there is great uncertainty there. Aspire chose First north, among other things because the investors in the market understand well the activities, understand what the company is doing and how to work with it."
Is the AIM your main competition?
Kostyal: The issue is not other stock exchanges. Traditionally, companies look to London or New York. London is currently in a period of major uncertainty and therefore people are looking at alternatives including First North. Israel is a very important country for us on Nasdaq. If a company can transition from being a private company to Nasdaq that is excellent but it does not always happen. Usually, companies do not look for the stock exchange itself but access to an active financial market. Our main competition is actually private capital raising - companies can remain private today for much longer."
If that is the case then isn't it preferable for companies to stay private, grow for another few years and then hold an IPO on Nasdaq, for example?
"The way I see it, the main reason that markets find it difficult to attract companies is the regulatory burden. In this way both the market and the State lose a lot. Public companies, both small and medium sized, create a lot of work. Sometimes it is too early to come to Nasdaq, and on our market, small and medium sized companies can obtain financing." It is true that it is important not to go to the market too soon but we can support companies earlier than in other markets; First North is a quality and controlled market but with less regulation. A good alternative for an Israeli company is to come to us and be traded as well as on the Tel Aviv Stock Exchange (TASE).
Do you have any links with the TASE?
"There is an open and good dialogue between us. Our competition is not with other stock exchanges but with companies that are not traded, so we feel that there are possibilities for working with other stock exchanges and to show companies that an IPO is an alternative."
To find 'an ecosystem that understands the company'
In recent months, many stock exchanges have 'wooed' Israeli companies - from Australia, via Hong Kong and onto Canada and the US Over-the-Counter market. It is generally said that companies prefer to be traded on markets close to their customers, and so for example if a company's main activities are in Australia then it might choose to be traded there. Since the US is the main market for a substantial number of Israeli companies why would they then decide to list in Sweden?"
According to Kostyal, "Firstly, not all companies see the American market as the biggest. And secondly, it is important for companies that there will be similar companies to them traded on a stock exchange, so that an ecosystem is created which understands their business model. For example, the Russian company Yandex does not operate at all in the US but held its IPO on Nasdaq because it is similar to Google and in the US investors understand it well."
Who invests in First North?
"We see a positive trend in which new small funds are being created and they are taking part in offerings. For example, in Aspire, from the very first day, there were investors that were small funds. We also have retail investors, private people that hold shares for the long term - not speculative investors and there is always an active market and a dialogue with the market. This is something that is missing from many markets and possible from the Israeli market as well.
"In general, in today's global environment, markets find it difficult to support small public companies. In Europe, the market is very dispersed and every market tries to create its ecosystem and finds it hard to generate momentum. In Nasdaq's Nordic stock markets, particularly in Sweden, there is a culture of investment in equity. 50% of senior citizens homes invest directly in stocks and the rate is even higher in indirect investments in stocks. That is not the situation in the rest of Europe and I'm sure not in Israel either. This is expressed in the fact that there are always funds and investors of various types that enthusiastically take part in offerings by small companies."
To what extent do external events like the crisis in Korea or global macroeconomic matters influence you?
"We are in no way immune to macro factors but the market is very strong on a global level as well as the Nordic stock exchanges. There are signs of growth in other markets in Europe as well. If the situation in Korea will worsen then it is reasonable to assume that this will affect the market but so far the market has been very flexible and absorbed many situations like this due to the fact that there is a major desire to obtain a return on yields in a low interest rate environment."
Published by Globes [online], Israel business news - www.globes-online.com - on September 11, 2017
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