A wave of IPOs by Israeli technology companies has swept through the stock markets in Tel Aviv and New York this year, in unprecedented numbers. But note the differences: while a little over NIS 4 billion was raised on the Tel Aviv Stock Exchange in the first half of the year by 42 newly floated technology companies, on Wall Street, in the same period, eleven Israeli companies raised an aggregate of more than $5 billion in IPOs or SPAC mergers. It goes without saying that each of those companies is now traded at a market cap in the billions of dollars; not something seen among the new companies in Tel Aviv.
The Tel Aviv Stock Exchange's management has for years been courting Israeli technology companies and trying to attract them to list in Tel Aviv, whether through an IPO or via a dual listing after they have already been floated on Wall Street. Despite the surprising success of dozens of technology IPOs in Tel Aviv, for the time being it seems that the largest and fastest growing companies that go public (such as monday.com and SentinelOne, which made IPOs on Wall Street, and ironSource and Payoneer, which were merged into SPACs) still do not regard the Tel Aviv Stock Exchange as an option, and straightaway look overseas.
"At least at the moment, the really big unicorns will go to Wall Street, because they can raise amounts there that it's harder to raise in Tel Aviv, and some of them merge with SPACs, a possibility that has only now become available in Tel Aviv," says Guy Preminger, partner and Technology Leader at PwC Israel.
"The TASE is changing"
The Tel Aviv Stock Exchange, Preminger says, "is undergoing a very very significant transformation, such that it may be that in the near future things will change, but today, it's hard to see a company raising capital at a valuation of over $1 billion doing so in Tel Aviv." He says that the Tel Aviv Stock Exchange has for years marketed itself as a springboard to Nasdaq, and one of the changes is that lately the companies raising money have also been seeing it that way.
What about the flotation of Nayax, which was carried out at a valuation of about $1 billion with a foreign underwriter on the Tel Aviv Stock Exchange? Is that something exceptional, or a harbinger of similar flotations to come?
"I think that if the Tel Aviv Stock Exchange manages to compete with Wall Street and to give valuations and amounts raised at similar levels, there will be more unicorns coming to Tel Aviv. Still, 90% of the companies will prefer Nasdaq or the New York Stock Exchange, despite the higher costs and the distance, and that's for psychological reasons and considerations of reputation.
"For companies close to unicorn status but not quite there, I presume that we shall see some of them deciding to start being traded in Tel Aviv and not on Wall Street if they get a good proposal, but the big unicorns will still prefer the US. In any event, the Tel Aviv Stock Exchange is rightly trying to persuade the Israeli companies traded in the US to list in Israel as well; it's doing that in the right way, and there is indeed no reason that they shouldn't be traded here too."
Another capital market source familiar with the area says, "Today, it's hard to get onto Nasdaq with less than $100 million annual revenue. The Tel Aviv Stock Exchange can therefore aim at those companies with revenue in the tens of millions of dollars, such as Glassbox, which was recently floated at a valuation of NIS 1.2 billion."
On Nayax, the fintech company which, as mentioned, was floated at a $1 billion valuation, he says that it could have made an IPO on Wall Street, but estimates that it chose the Tel Aviv Stock Exchange thanks to the global offering model that included a foreign underwriter that distributed the shares to foreign investors, who accounted for 70% of the demand. "In Tel Aviv, it's one of the biggest companies on the stock market, and in the US it would have been considered almost micro-cap. Here, it received full attention," he says.
"The privilege of taking the cream
"It's true that the US market is very deep in terms of the number of investors who understand technology and know how to invest, in terms of the multiples and pricing levels, and especially in terms of the size of the market and the amount of demand for flotations," the source added. "Nasdaq, which is the biggest stock market in the world for technology, has the privilege of taking the cream. But today, companies that aren't monday.com and aren't being floated at a valuation of $5-7 billion but at $1-2 billion - on Nasdaq, they're a drop in the ocean, whereas in Tel Aviv they'll find a warm home and demand."
Commentary - Omri Cohen
There is good reason for Israeli companies to prefer the US stock market. Being listed on a stock exchange in New York, whether it is Nasdaq or the New York Stock Exchange (the differences between which have become less pronounced in the past decade). Being listed on these markets gives them international repute, and makes them more transparent and more accessible to foreign investors. Thanks to the filing of reports in English, they also become more transparent for suppliers and customers, which is highly important for companies whose business is on the Internet.
Companies listed in the US are also more likely to win international media coverage, which is highly valuable for Israeli technology companies. The US capital market also gives access to investors from all over the world, and thus to raise sums that would generally be too much for the Israeli market.
For these and other reasons, most technology companies with the potential to carry out a flotation in the US will seek to realize that potential. On the other hand, smaller companies are more likely to prefer the Tel Aviv Stock Exchange to improve their standing vis-a-vis companies already listed.
If in the past flotations at valuations in the hundreds of millions of dollars would make an impact among investors on Wall Street, the rise in stock prices over the past decade has made such flotations much less interesting, as evidenced by the fact that all the Israeli companies that have made IPOs in New York recently have market caps in the billions of dollars.
The Tel Aviv Stock Exchange is thus left with international technology companies that do not meet Wall Street standards. This was true in the past, it is true in the present, and it will probably remain true in the future. What has changed is the standards set by Wall Street investors with which companies being floated there have to contend.
Published by Globes, Israel business news - en.globes.co.il - on July 6, 2021
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