Is the IPO window on Wall Street open, or does the present situation on the markets preclude the possibility of Israeli companies reaching the public market in the US? It appears that the answer to that question is not clear cut. On the one hand, there are no big-number offerings such as we saw last year, and none seems to be in the offing. On the other hand, small offerings continue to take place, including of Israeli companies. In 2021, the IPOs coming out of Israel were at valuations of at least $1 billion (such as those of SentinelOne, Monday.com, Global-e and others). Today, it is mostly a matter of IPOs at valuations in the tens of millions of dollars, raising just a few millions.
According to US research firm Renaissance Capital, over 60% of the IPOs that have taken place so far in 2022 raised up to $50 million. Historically, offerings of this size have been less than a quarter of the total.
As for the Israeli angle, telecommunications equipment company Actelis recently raised $17 million at a valuation of $70 million; video transmission technology company Maris-Tech raised $18 million at a valuation of $33 million; Rail Vision, a developer of cognitive vision sensor technology and safety systems for the railway industry, raised $16 million at a valuation of $24 million (all of the above are now traded at market caps below their IPO valuations); and last week, renewable energy and energy storage company Brenmiller, which was already listed on the Tel Aviv Stock Exchange, was listed for trading on Nasdaq as well.
Other small companies that have recently filed prospectuses are wearable computer interface technology company Wearable Devices, e-commerce company Jeffs Brand, drones company ParaZero, and drone cybersecurity company Mobilicom, which is traded on the Australian Securities Exchange at a valuation of some NIS 32 million. SaverOne, a company that has developed a solution for preventing drivers from becoming distracted by their telephones and that is traded on the Tel Aviv Stock Exchange, is also on its way to Wall Street, and should already be traded on Nasdaq, but it deferred its pricing because of the state of the markets, and is expected to complete it shortly.
"There’s no doubt that this is a trend, and we see in our backlog of deals that there will be more like these," says Adv. Ofer Ben-Yehuda, head of the High Tech Practice at Tel Aviv law firm Shibolet & Co. The head of the Capital Market Practice at Shibolet, Adv. Adi Zaltzman, adds that "every small company that comes to Wall Street has a slightly different story." He relates a case on which he advised in which an Israeli company filed a prospectus for an offering in Tel Aviv last summer, without success. "The idea arose of an offering on Nasdaq," he says. "To me it sounded like a joke, but they went to Nasdaq and it turned out that it‘s possible to raise modest amounts, at lower valuations than here, it’s just hard to believe. People have always been afraid of the expenses that Nasdaq-listed companies have; the expenses are indeed high, but the difference isn’t huge, and solutions are found. And if it’s possible to make an offering on Nasdaq, companies prefer it."
Ben-Yehuda describes the alternatives: "At present there are no IPOs in Tel Aviv in the technology sector. That could change, but at the moment there’s nothing. Private placements are highly stressful, all the funds exert pressure, term sheets are taken off the table. Suddenly the option of being traded on the biggest market in the world, even if at lower valuations than were previously on the table, seems like a good fit. Companies even prefer a SPAC merger that won’t manage to raise a normal PIPE (a private investment in public equity deal associated with a SPAC merger, S. H.-W.). The reason is that a public company can raise at some valuation, sometime in the future."
"The market is available and cheaper, and represents a convenient alternative to private offerings," Zaltzman adds. "Let’s not forget that tackling a $10-15 million round on Nasdaq is easier than tackling a similar round in Tel Aviv."
Ben-Yehuda: "To that you have to add the fact that, eighteen months ago, US firms specializing in stock market offerings didn’t want to work with Israeli companies unless it was at full price. Now, the numbers are different and the prices are different."
But there’s a risk that a company will start to be traded at a low valuation and will never appear on the radar of the more serious investors.
Ben-Yehuda: "There’s also the risk of becoming a penny stock. But some of the small companies, contrary to the negative market indices, have performed well. The companies believe that they will be able to demonstrate significant revenue growth and improvement in the loss or profit line, and there’s hope that the market won’t be always in the state that it’s in today, and they’ll be able to raise money, even if at a low valuation. The expectation is that with the public platform and the recognition, if you do well, you’ll be able to obtain money. Will that be proved right? We’ll see."
Who are the investors in these small offerings?
Zaltzman: "Generally, they’re led by American underwriters who aren’t tier one or two. I presume that the investors are institutions that are connected to them. There’s no doubt that there are also Israeli investors, or former Israelis, and small US institutions."
Ben-Yehuda: "There are financial investors with instruments such as structured products or a combination of debt with a discount. They’re not all that interested in the company’s technology. The more the companies can present performance - and today, unlike in the past year or two, not at overblown valuations - then there’s a chance that when the market revives, the companies will be able to raise money from investors who look at what the company does."
What does this mean for the Tel Aviv Stock Exchange? If a valuation that in the past suited the local stock market is now suitable for Wall Street that will have an adverse effect on the exchange?
Zaltzman: "The significance is marginal. Some of the companies reach a listing in the US via Tel Aviv, in a dual listing; others will at some stage want to list in Tel Aviv as well. We have a client who came via a third stock exchange and listed for trading in the US, and now he wants to list for trading in Tel Aviv because it’s convenient for investment institutions when a company is dual-listed.
"In my view, most of these companies, if they don’t become penny stocks or stock market shells, will at some stage become dual-listed. They don’t have the privilege like Check Point not to be listed."
What about the other exchanges that in recent years have been wooing Israeli companies, such as in Canada and Australia?
"In Canada, the experience has mostly been with cannabis companies. In Australia, out of a double-digit number of Israeli companies, one or two have posted positive returns. In any event, companies will certainly prefer Nasdaq to Australia, because of the time difference and the distance, and the stock exchange in Canada isn’t Nasdaq either, with all due respect."
Published by Globes, Israel business news - en.globes.co.il - on May 29, 2022.
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