When Yair Nechmad, CEO and chairman of Israeli fintech firm Nayax, opened the trading day at the Tel Aviv Stock Exchange in a celebration of his company’s initial public offering of shares, officials of Israel’s only stock exchange were likely savoring the moment.
Nayax’s May IPO was a milestone. The largest in the history of the TASE’s tech sector in terms of both the company value and the amount raised — NIS 462 million ($141 million) based on a company valuation of NIS 3.4 billion ($1.05 billion) — it was also the exchange’s first share offering of a unicorn, or a startup with a value of over $1 billion.
Over 70 percent of the Nayax shares sold via the IPO were acquired by international investors, TASE said.
The exchange, once shunned by local technology companies that sought instead to raise funds from foreign exchanges — primarily Nasdaq, along with London, Toronto, and Australia — is now seen by entrepreneurs and their investors as a legitimate and hot way to raise funds for their fast-growing companies.
“This is the first global offering of a unicorn on TASE, and we are confident that more international companies will follow this path,” said Ittai Ben-Zeev, CEO of TASE, at the opening ceremony.
Nayax’s IPO and that of the 93 companies that have listed shares on the TASE since the start of 2020, raising a total of NIS 12.4 billion ($3.7 billion), point to how far the troubled exchange has come after years of falling volumes, companies delisting from the exchange, criticism of burdensome regulation, and a mere trickle of IPOs.
“The long-term vision that the Tel Aviv Stock Exchange is a suitable and attractive venue for Israeli tech firms to publicly list is finally being realized,” said Steven Schoenfeld, a veteran of the investment management industry and CEO of MV Index Solutions, which develops, monitors and markets a selection of benchmark indices. “This is the result of both specific initiatives by the TASE and Israel Securities Authority to make the TASE a more attractive listing venue, as well as the growing sophistication of Israeli institutional investors.”
As Israel’s tech ecosystem grows, the country has evolved from a Startup Nation — with a plethora of fast-moving small tech firms that get sold quickly — to a “Scale-Up Nation” in which entrepreneurs hold on to their companies and seek to grow them into large and profitable ones.
As the companies look to raise more capital to expand or fine-tune their offerings, many are increasingly viewing a public listing on their home market as a way to do so, shifting away from a tendency to seek private equity or venture capital funding or go public on a foreign exchange such as Nasdaq.
A perfect alignment of factors has made issuing shares on the TASE attractive. These include cash-laden local institutional investors hungry for tech, especially as the coronavirus pandemic has shown digitalization is here to stay; efforts made by the Tel Aviv Stock Exchange since 2016 to help these institutional investors better understand, analyze and invest in high-risk tech firms; and an effort by regulators to ease burdensome rules for entrepreneurs and provide incentives for institutional investors, enabling them to lower their risk exposure.
Lior Navon, head of sales and markets development at the TASE, is convinced that Nayax’s listing is just the beginning.
“We very much believe that in the coming years we will see other big companies, unicorns, listing shares on our bourse,” he said in an interview earlier this month.
IPOs on the up since January
He’s already been proved right. In the week of June 6-10, five tech firms joined the exchange, including cleantech firm Veridis Environment, which raised NIS 882.5 million ($269 million) in the largest share offering this year, at a company valuation of NIS 3.75 billion ($1.14 billion) after the offering.
As of June 17, 63 companies, including 44 tech firms, were newly listed on the TASE this year, raising a total of NIS 7.8 billion ($2.3 billion). The 33 IPOs held in the first quarter of 2021 was the highest quarterly figure since 1993, a year that saw a record 186 IPOs, according to data provided by the exchange.
In all of 2020, only 27 companies held IPOs on the TASE, but it was still the highest figure in 13 years. Nineteen of the 27 firms were from the tech or biomed sectors, a spurt of activity after 2019 and 2018 saw no tech IPOs at all, according to data compiled by IVC Research Center and Meitar Law Offices.
There are now at least 511 firms listed on the TASE, up from 455 in 2020 and 442 the year before. 2020’s record of 665 is coming into view.
According to data from the Israel Securities Authority, said Navon, over 90 companies have submitted prospectuses to the regulator, waiting to come to market. He said 70 percent of them were from tech firms.
Cleantech and fintech firms have been the most popular for investors, he said, followed by companies involved in food technology, cybersecurity and medical devices.
One of the firms is GenCell, which raised NIS 205 million ($62 million) in a share sale on the TASE in November 2020 at a valuation of NIS 800 million ($244 million), in the first public listing of an Israeli company in the hydrogen industry.
Another one of the relatively new firms on the TASE is Highcon Systems, which raised NIS 151 million ($46 million) the same month at a valuation of NIS 495 million ($151 million) after money.
Benny Landa, a serial entrepreneur who has invested in both GenCell and and Highcon, went to the Nasdaq when he wanted to take his pioneering digital printing firm Indigo public in 1994. Today, his Landa Ventures investing arm is having firms list on the TASE instead.
“Israel is a different economy from 20-25 years ago,” Landa said in a phone interview. “It is an economic powerhouse, vibrant and dynamic. If I can do an IPO in Israel and develop the local industry, then why not? It makes a lot of sense for companies at a certain stage, of a certain size, to IPO in Israel.”
“There are very strong institutional investors in Israel, world class, and that wasn’t the case 25 years ago,” he said. “There is access to capital, there is an understanding and an interest of Israeli institutional investors to invest in high-tech.
“And it is a relatively simple and speedy process, unlike taking a company public in the US, for example, which is much more complex and time-consuming. And all that bodes well for raising capital in Israel.”
One major factor drawing companies is a drive by the TASE and Israel Securities Authority to ease regulations, responding to CEOs who complained that dealing with regulatory obligations left them little time to tend to the growth of their firms.
Since 2016, companies looking to list on the TASE can publish their prospectus or financial reports in English, and no longer need to submit a new shelf prospectus every year — among some 100 regulations that have been eased.
Those moves came three years after Mellanox Technologies Ltd., at the time the sixth-largest firm on the TASE, decided to delist, in a bitter blow to the exchange. The firm, which continued to be traded on Nasdaq, said the move would lower costs and regulatory requirements, and allow management to focus more on the company’s business.
Founder Eyal Waldman, who sold Mellanox to US tech giant Nvidia in 2019 for $7 billion (NIS 23 billion at today’s exchange rate), said things are now better on the Israeli exchange, though companies still consider listing abroad the “more serious” and “significant” option.
“There are significant changes in the TASE, with its new CEO Ittai Ben-Zeev,” Waldman said. “They are doing a good job and they have made changes in regulation as well, and things have changed from when we were traded in the exchange. As a place to issue shares it is better than in the past.”
The coronavirus pandemic has also been good to the TASE, as travel restrictions limited the horizons of tech entrepreneurs who might normally look to do business abroad.
“There is no doubt that at times of crisis you turn inward and look at what the options are in the local market,” Navon said. “Many things meshed in the coronavirus pandemic,” he added — notably, the realization that tech is here to stay and the feeling that “now is the time to invest in Israeli tech.”
Accounting and consulting firm PwC Israel has helped over 120 local companies hold IPOs on the TASE, Nasdaq, and exchanges in London and Toronto since the start of the year, said Guy Preminger, partner and technology leader at the firm, in an interview.
“There will be others,” he said, predicting no letup in IPOs on either the TASE or the Nasdaq.
Israeli tech firm monday.com made history earlier this month when it raised $574 million (NIS 1.8 billion) in a Nasdaq IPO at a whopping $6.8 billion (NIS 22.3 billion) valuation, giving it the second-highest valuation ever for an Israeli tech firm via an IPO process, according to IVC Research Center, which tracks the sector.
Israeli institutional investors who until the coronavirus pandemic were hesitant to invest in TASE tech firms have now become “significant players,” Preminger said.
Part of the reason is because they want to join the tech revolution, and to that end have prepared analysis teams and departments over the years. And part is because Israel has provided them with incentives to invest in tech, giving them downside protection, Preminger said.
In addition, these institutions, which generally invest vast amounts in commercial real estate, found themselves with a lot of cash freed up for investment as the commercial real estate market froze due to the work-from-home trend dictated by the pandemic.
“These are very many reasons that came together exactly in the coronavirus period,” Preminger said.
“The bourse in Tel Aviv has in the past year made an amazing jump, and tech firms that didn’t think they would raise funds in the bourse in Tel Aviv now want to raise money in Tel Aviv,” Preminger said. “But — these are still smaller companies than those that go to the Nasdaq. The big companies, the unicorns, still prefer to go to the Nasdaq, either via an IPO or a SPAC.”
Having it both ways
One way the TASE can attract bigger firms is by convincing large Nasdaq-traded Israeli companies, such as Wix and Lemonade, or new ones that are merging with special purpose acquisition companies (SPACs) in order to list on the Nasdaq, to dual-list in Tel Aviv.
Dual-listing refers to a listing of securities on two or more exchanges. This improves the firms’ share liquidity as well as upping their public profile because their shares are traded on more than one market. Dual-listing also enables firms to diversify their capital-raising activities rather than being reliant only on one market.
According to the TASE’s Navon, over 20 Israeli tech firms have merged or are merging with SPACs based in the US, joining the global rush to the fast-track method of getting listed publicly.
Once a company is listed in the US via a SPAC, dual-listing on the TASE becomes much easier.
“We have done away with all of the obstacles and we think that the TASE can be a wonderful solution to support the IPO price of these companies. We are putting a lot of effort into this,” Navon said.
“Imagine what would happen to the TA-35 index and TA-90 index if Wix, SolarEdge, CyberArk, Lemonade and Fiverr were part of it. All of the investors in the world would come to Tel Aviv to invest. And this would deepen the local market, and this is win-win for all.”
Listing their shares in Tel Aviv would give them access to funds that are earmarked only for firms on Israeli or non-US indices.
“There is very much money in Israel whose mandate is to invest only in Israeli indices and they cannot invest abroad. There are also many international players whose mandate is to invest outside the US,” Navon said.
Having strong tech firms on the Tel Aviv Stock Exchange would give investors unwilling or unable to invest in the US access to companies with robust growth potential.
Navon said TASE officials are talking with “many of the unicorns listed on Nasdaq” — he declined to name specific companies — but “at this stage, we still have not managed to crack this issue.”
“There is no good reason” for these firms not to come, Navon said. “We have removed all of the regulatory hurdles,” he said, noting that the firms would be put on the TA-35 blue chip index. “The time is ripe for this to happen.” He acknowledged, however, that the “perception” of regulatory obstacles remained.
Still, he is optimistic. As soon as the first few firms dual-list their shares, others will fall like dominoes, he predicted. “There will be a whole wave of companies that will list one after the other.”
A study published by the Israel Innovation Authority earlier this month showed that if Israeli high-tech companies that are traded on foreign stock exchanges listed on the TASE as well, the total value of all the companies comprising the Blue Chip TA-35 would jump by more than 70%, and tech firms would make up approximately 70% of the index, up from 40% today.
The addition of tech heavyweights to the Israeli bourse would “make the market sophisticated,” Navon said.
Of the TASE’s current companies, there are those that are “riper, and older, with significant revenues — and also those that still have to reach sales, but have high potential,” said Preminger.
“It is clear that the second type of companies, with little or no revenue, are riskier, and whoever decides to invest in them should know that the risk is higher, and create a portfolio that is diversified enough to stave off part of the risk.”
Landa, too, sees the potential of “still relatively small” companies listed on the TASE. “They are not global powerhouses yet, but some of them surely will be.”
According to data published by the exchange, the TA-Tech Elite index, which includes most of the tech and biomedical firms traded on the TASE, has advanced 52% in dollar terms from January 2020 to May 2021, compared to a 57% jump in the Nasdaq and a modest 7% rise among firms on the TA-35 over the same period.
Navon said that it is not enough simply to bring companies to the market. The aim, he said, is to bring them and “allow them to grow.”
More and more large companies with real sales and higher valuations are coming, he said. But there are also smaller companies, which will “have to prove themselves.”
“In the end the best filter is the investors,” Navon said. “If they are ready to buy the share, then that is the real test… And I believe that institutional investors today do a better job at filtering than they did in the past.”
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