Tal Liani, head of the technology research department at Bank of America, looks at some of the Israeli technology companies, especially those that have recently merged into Spacks – and “pulls the hairs” when he encounters their skills when it comes to investor relations (IR).
Liani, who specializes in cyber security, is a veteran in the field of investment banking on Wall Street, and if you are the executives of a company that intends to reach Wall Street, certainly and certainly if through a merger with SPAC – you should listen to what he says.
SPAC, it will be recalled, is an inactive company that raises money from the public in order to merge an existing company within a pre.determined period of time, or it will be forced to return the money to investors. Since the beginning of the year, more than 10 technology companies from Israel have been merged into SPAC companies, most of them worth over a billion dollars. As of today, in the vast majority of these companies, investors have recorded losses since the merger, in some cases half of their investment and even more.
“The worst thing that can happen to a stock, no matter if it has hit the market in SPAC or IPO (initial public offering), is that it becomes irrelevant to investors. This is the ‘kiss of death’, and it is very difficult to restart the company afterwards.” , Warns Liani. The solution is to cultivate the relationship with the investors, and in the right way.
Is this actually what explains the fact that the Israeli companies that were recently merged into SPAC companies lost significant parts of their value after the merger?
“First of all, entering the market through SPAC brings companies into a situation where, as they say in English, they have a chip on their shoulder – they have to prove themselves. Investors think a company went through the SPAC process because it failed to go public on the IPO.
“There is also a certain structural problem: SPAC entrepreneurs raise money and then they have 18 months to find an investment, or return the money to investors. Suppose 12 months have already passed, there is a risk that you will buy something less than ideal, because otherwise you will have to return the money.
“Another problem is that there are promoters (consultants) who are outside the company, who get a percentage on the deal, and the question is do they really bring it the right investments, for the right motives? Are they acting because of the commission they will receive or is it really the right company? These are mines that need to be taken care of. “
According to him, after the merger, there is a period of 6.12 months in which the company that merged with SPAC must prove itself. “Investors start with concerns. There is always concern whether the company agreed to merge with SPAC because it received good value, or because it was not good enough to enter the public market in any other way. You have to prove to the investor that you are worthy and good,” says Liani.
Liani’s tips for tech companies on their way to Wall Street
● Understand the importance of investors and invest in a relationship with them
● Publish full reports with all the financial data, and even beyond what is required – so that investors can understand how the company can grow
● Hiring an American IR Manager – “Need to talk to investors in their language, their slang and their watch”
● Let there be someone on the executive avenue who has already gained experience in the field of technology on Wall Street
American companies are doing great
The shortcomings in investor relations are not only unique to companies that have been merged into SPAC, but he says entering the public market in this way only increases the company’s burden of proof. “When an American company goes on the market, and I cover the cyber field then I know the companies in the field, you usually see that they are prepared for it in a great way.
“American companies understand that they must support stock trading in the beginning, they hold a day of analysts that includes all the numbers you need to know. When I come to Israeli companies, no matter if it is IPO or SPAC, many times one of the problems is understanding that the investor is important.
“In Silicon Valley you will never ask whether the investor is important – you are not running the company for the person sitting on the board, but for the investor. He is the one who will raise the stock and make a trade, and that is good for the company: And recruit new employees. “
What do you mean, companies do not understand the importance of investors?
“A lot of times, especially when it comes to merging a company into a spock, they go to the market unprepared, without investor relations. Then I come across cases where a company does not report earnings per share, only total earnings. I sit with them and they tell me they do not yet know the number of shares. Therefore, they do not give a profit per share, so what am I supposed to do – guess? Or do they report a first quarter and a fourth quarter, and say ‘Quarters 2 and 3 are given later’ “.
“Companies come out with only half the information”
Liani adds that “the problem with these companies is not their readiness for the public market operationally, or in terms of product quality. They are usually good companies with a niche market that they are good at, some are excellent and well managed. The problem is that they do not understand there is another aspect. That if they bring their numbers accurately, they can talk to investors about market size, market share, opportunity, and prove it in numbers.
“All of these things are stock supporters. The numbers need to be arranged in a spirit level, with all the quarterly reports and not just annuals, a cash flow statement. “
In contrast, he said, “an experienced company that prepared itself for the public market in a two.year process, and went through seven rounds of hell, talked to investors, analysts and investors and learned firsthand what to do.”
That is, the desire of companies to shorten the process of entering the public market and turning to SPAC, becomes here from advantage to disadvantage.
“There are several stages in the life of a company. At first it is a start.up, then a large start.up, then the growth stage and then the preparation reaches the public market and the company rubs. SPAC skips this stage, it is a start.up that grows and sells.
“In Spacks, since the companies skipped the investor preparation phase, it is missing and will be in their backs. Maybe not today, when the market is crazy and the valuations are good, but the problem is what happens when the market is repaired. I am ‘old enough’. “They will be harmed because there are no strong hands of investors. Therefore, we must work on it when everything is still good.”
As an example of a company that has successfully gone through all the stages, it mentions Sentinel One, the cyber security company that went public (IPO) several months ago. “It’s a supremely American company,” says Liani. “The CEO is Israeli, but the way they communicate with Wall Street is completely American.”
Do not forget the importance of the accent
Liani also provides a practical recommendation: “From an Israeli point of view, if I were a manager of an Israeli company, I would make sure that my investor relations manager knows English with an accent. And IR is completely Israeli. It’s not right to do. It’s right to do as at Check Point, for example, where there is a completely American investor relations manager who lives in the United States.
“Investors need to be spoken in their language, and they are mostly American. Allot, Cyberark and Amdocs also manage their investor relationships well in English. But many times companies fail and work with whoever is comfortable with them; it’s just not true, investors want them to speak their language, slang and watch.” .
Apart from the language, the other challenges you mentioned regarding Spacks are not necessarily unique to Israeli companies. Do US companies that merge with SPAC also show weakness in the IR field?
“This is not an Israeli problem, but a global one. Colleagues at the bank who survey such companies tell me, ‘This is a great company, but the reports are not ready.’ Eventually when you go out with SPAC you have to prove yourself and you can do it with the numbers.
“So when an American company merging with SPAC, in a big way the story is similar. But as an Israeli I say with love and not criticism, Israeli companies have a harder time with Israeli management if you don’t bring someone with experience in technology on Wall Street. Many times they have to make mistakes to learn from them.”
In the whole process of merging to SPAC, no one says these things to the company? Do not warn them that there is a need for a CFO or an IR person with experience in the market, do not tell them to publish more detailed reports?
“Probably not. I do not know what is going on behind the scenes. Venture capital funds certainly know the importance, because they have been playing in the international market for years, but there are not always such funds. So either do not have the knowledge, or do not think it is important enough.”
personal: 53 years old, grew up in Bat Yam.
professional: Head of the Technology Research Department at Bank of America, specializing in cyber security. Liani is an electronics practical engineer, CPA, and holds a master’s degree in finance from the University of Illinois. He served as an analyst and head of the research department at Zanx.
Something else: Appeared more than once at the top of the list of analysts in the US.