While the Tel Aviv Stock Exchange has been easing regulations to encourage Israeli tech companies to issue shares locally and the Nasdaq is expecting IPOs from Israel to pick up, interest in Israeli companies has also arrived from an unexpected source. The Australian stock exchange has come knocking in an effort to drum up interest and convince companies to offer equity on its far-off shores.
“We are not competing with Nasdaq for listings,” Max Cunningham, the general manager of listings at the Australian Securities Exchange (ASX) said in an interview when he visited Israel two weeks ago. Companies that list on the Nasdaq generally have “off the charts growth,” are big global businesses, and probably have a large presence in the US.
“I don’t think that is who we are competing with,” he said over a sandwiches-and-salad lunch at a Tel Aviv hotel overlooking the beach. “But I think those who don’t go to Nasdaq, but want to list for a variety of reasons, may want to look at Australia. We just have one main market, the same level of disclosure for all companies, and we have some great companies that are doing very well. Australia is the biggest funds management market in Asia — it has more funds under management than anyone else in Asia — and the third biggest in the world.”
Five Israeli companies have listed shares on the Australian stock exchange since January 2015, including satellite communications company Sky and Space Global and data storage company Weebit Nano Ltd., bringing to six the total number of Israeli or Israel-related companies that trade their shares on the exchange, according to data provided by the Australian Stock Exchange.
And more are on the way, according to Cunningham.
“There are two to three Israeli companies in the pipeline for listing by the end of 2016 – all of them have a tech element,” he said.
One of them, according to the Australian Financial Review, is restaurant tech company Dragontail Systems, which plans to raise $6 million before the end of this year through an initial public offering. The company also intends to move most of its research and development team to Australia, the report said.
The ASX has been focusing its efforts on encouraging foreign companies to list on its exchange. It has been actively investing time and money in helping startup companies grow, mentoring them and investing in incubators and accelerators. It facilitates connections with VCs and small funds and then assists them to map out what should they look like as a public company, and how long they should wait before selling shares to the public.
Its efforts seem to be paying off. The Information Technology (IT) sector had the most share floats and the best returns among Australian initial public offerings in the third quarter of the year, with the newcomers significantly outperforming the broader share market, The Australian said on October 10, citing a report from OnMarket due for release later this week.
The number of New Zealand companies has jumped from 15 to 46 in the past three years, Cunningham said. New Zealand leads the number of foreign companies listed on the exchange, followed by US companies and those from Singapore, China and Hong Kong.
All of the Israeli companies that listed on the ASX are Australian incorporated and all except one, medical cannabis developer Phyto Tech Medical Ltd., have listed their shares via a reversal into an Australian entity — a so-called backdoor listing, when the company goes into the shell of another existing one. Phyto Tech Medical Ltd., later acquired by MMJ Bioscience, held an IPO in January 2015.
The companies identify as Israeli due to their management, founders and operations being Israel-based. Some of the companies have operations in Australia, USA, Europe and the UK, the exchange said.
The home front: Too little, too slow
Meanwhile, the Israel Securities Authority and the Tel Aviv Stock Exchange — suffering from a drought of new shares issues and falling volumes — have been trying to ease regulations to encourage small and medium Israeli tech companies to list its shares on the exchange — as companies like Check Point Software Technologies Ltd. and Wix.com Ltd. have traditionally preferred offering their shares on the Nasdaq, to be closer to their markets and avoid burdensome local regulation.
Just two companies held an initial public offering of shares on the Tel Aviv Stock Exchange to date in 2016 — Vonetize, a company that offers video on demand, and Mgurit Israel, a real estate company — compared to a record of 62 initial public offerings in 2007. Seven companies, including Mylan NV, a US pharma company, and biopharmaceutical company MannKind Corp, dual-listed their shares in Tel Aviv in the past 12 months, end-September data from the exchange shows.
The Australian proposition is “interesting because small and medium business in Israel are constantly seeking venues to raise money, and when such a venue is discovered — it creates a real opportunity for the Israeli high-tech industry,” said Zvi Gabbay, head of the Financial Regulation and Securities department at Tel Aviv-based law firm Barnea & Co.
Australian financial laws have earned a reputation as a “creative and advanced regulatory regime that balances well between investor protection and a pro-business approach that understands the risk of over-regulation,” Gabbay said. At home, even if the Israel Securities Authority has been talking about the need to incentivize small and medium high-tech companies to raise money in Israeli, it has thus far been unable “to create a real alternative here.”
“The authority asks for time to implement the necessary changes and legislative amendments, but the economy doesn’t have that time to give, and companies are forced to travel across the world, to Australia, to raise money. The trend of Israeli companies seeking foreign funding is a huge missed opportunity for the Israeli market, which has not been able to produce an attractive capital market for investors and small and medium companies.”
The Israel Securities Authority said in a comment that it has undertaken “breakthrough” regulatory steps to make the Tel Aviv bourse a natural and first choice for high-tech and small and medium-sized companies. These include easing reporting requirements and allowing them to be in English and in line with those of the Nasdaq, giving tax breaks to investors and entrepreneurs, and providing investors an analysis service of tech companies. All these changes, some of which have been recently implemented and others will be in force soon, “create a completely new regulatory environment for high-tech companies and make the Israeli market once again attractive as a home base for these companies from which they can grow to become international entities.”
But with Israel’s technology sector awash with eager investors from the US, Israel, India and China, tech companies are managing to raise money and attain higher valuations without intense pressure to have an exit in the form of a sale of the company or an initial public offering of shares on an exchange.
Global IPO activity has also dried up somewhat. In the first half of 2016 this activity was “significantly lower” than in the same period a year earlier, according to the EY Global IPO Trends report for the second quarter of 2016. In the short term, global IPO activity is likely to continue to feel the impact of concerns regarding the direction of interest rates, the UK’s decision to leave the EU and the US presidential election in November. However, the authors of the report say, “once these sources of volatility stabilize, the outlook should be a lot more positive, supported by healthy pipelines of IPO-ready companies in many key regions and across many sectors.”
Meanwhile, with 77 companies listed, Israel has the largest number of companies trading on the Nasdaq after the US and China. Just one company, Cellect Bio, held an IPO on the Nasdaq this year to date, and another two, Nano Dimension and My Size Inc., started trading on the exchange after being upgraded from the over-the-counter market, according to data provided by Nasdaq.
“There is a strong pipeline out of Israel with tech, bio tech and consumer companies looking to list on Nasdaq once the market conditions and timing are good for them,” said Stephanie Lowenthal, a spokeswoman for the exchange by email.
Come to Oz – you may do very well
The Israeli companies that listed in the Australian stock market have experienced mixed results. Some have done extremely well, like Audio Pixel Holdings Ltd., a digital loudspeaker developer that listed shares in 2011 and saw its price rise 204 percent in the past 12 months leading to October 4 compared with a 12-month rise of 12 percent for the S&P/ASX 200 benchmark index, according to data compiled by Bloomberg. Likewise, Emefcy Limited, which makes wastewater treatment solutions and listed in December 2015, has advanced 525 percent since listing, as of October 4.
Others, however, have not done so well. Weebit Nano Ltd. which listed in August 2016, is down 40 percent since listing, and MMJ Phyto Tech Ltd., which held an IPO on January 22, 2015, was down 11 percent in the past 12 months as of October 4.
“If you are a company of around $75 million to $200 million, you are within reach of being included in our 200 or 300 index, which are the benchmark indices of the exchange, the 300 being that for smaller cap companies,” said Cunningham. “For some companies in a certain stage of their life, the Australian stock exchange can be a very good home. To these companies we say come, we are here to help you grow your business and provide you with capital.”
Cunningham met with in Israel with lawyers, incubators and VC funds to learn the Israeli ecosystem. “We were very encouraged,” he said. “We are not here to tell people don’t list on other markets but we want to present the ASX opportunity.”
He plans to organize a trip for an Australian stock exchange team in coming months to further pursue the opportunities in the Israeli market, he said.
“In recent years we see a globalization process in which international markets open up to foreign issuers and more and more companies go public in foreign jurisdictions,” said Ron Ben-Menachem, a partner in the corporate and securities department at attorney Herzog Fox & Neeman in Tel Aviv.
The law firm recently worked for an IPO of an Israeli company in Singapore and works with clients who seek alternative markets to raise capital. “The Australian capital market is certainly open to Israeli companies who reached a certain level of maturity and have solid business reasons to raise in Australia such as local investors, markets or customers. The ASX should certainly be on the top of the list of such companies,” said Ben-Menachem.