More than 20 technology companies from Israel reached the American capital market during 2021, one of the most active years in the field. About half of the companies did so through an initial public offering (IPO), through the king to the market, while the rest did so through a merger with SPAC companies – inactive companies that raise money in order to acquire an existing company.
Within a short time, a clear trend developed: almost all Israeli companies merged with SPAC showed negative returns, while those issued yielded mixed returns. However, a test of returns today – about five months after the peak months – indicates that a large majority of companies that have performed IPOs are trading at a negative return.
This is in addition to three “stars” that show high positive returns: Monday (Monday.com), which developed an operating system for work, was issued in June on NASDAQ and has since jumped 121%; Global-E, which provides technological solutions for cross-border online trading, was issued on NASDAQ K. May and its share has since climbed 111%; And the cyber security company Sentinel One, which was issued in June on the New York Stock Exchange and rose 67%. All three, by the way, have already reached higher share prices but have weakened from the highs. Among the companies that have merged with SPAC, only one currently presents a value higher than its value in the merger, the automotive company Locust Robotics.
The big erasures, and the top that offsets
If you look at the aggregate value of all the Israeli technology companies that joined Wall Street this year, compared to Schwein at the time of the IPO or merger with SPAC, then the total number is more or less balanced. However, when you dive into the data, it turns out that the increase in value of the three companies that generated the positive returns almost completely offset the decrease in value of all the other companies.
Monday, Global-E and Sentinel One added $ 18.7 billion in aggregate (Monday $ 8.2 billion, Sentinel One $ 6.4 billion and Global-E $ 4.1 billion) while 17 other companies lost a cumulative value of $ 18.8 billion.
Monday’s Trading Opening Ceremony / Photo: NASDAQ
Among the large write-offs of value are the gaming company Playtica, which was issued at the beginning of the current year (before the big wave of issues that left Israel) at a value of $ 11.1 billion. Weak quarterly reports and a reduction in the annual forecast released in early November have led to a sharp drop in the stock and as of today, Pleiatica is trading at a value of about $ 3.6 billion lower than its IPO value.
Playtica is a relatively unusual case, as most of the declines in value were from companies that made SPAC mergers rather than IPOs. For example, the digital insurance company Hippo has lost about $ 3 billion since it was merged with SPAC. Its merger value was $ 5 billion and it is currently traded at a value that is close to $ 2 billion.
Other companies that have merged into SPAC and lost significant parts of equity include the virtual psychiatric care company talkspace led by the couple Oren and Ronny Frank, which has experienced turmoil in its management in recent days (including the couple leaving) which has recorded a negative 76% return since the merger and lost over $ 1 billion; The AutoTech company REE, which lost about 62% of its value, about $ 1.9 billion; And Iron Source, which deals with solutions for the app market, which has already traded at higher prices and positive returns but is currently recording a negative return of 15%, losing $ 1.7 billion.
“The market was at its peak in the first half”
What has happened in the recent period that has led to these declines, and what is expected in the future? Ilan Paz, CEO of Barclays Israel, divides the answer into shares that reached Wall Street through a merger with SPAC, and those that arrived at IPO.
Regarding both types, he says, “The stock market in the second half of 2021 is less good than it was in the first half of the year. If you look at what happened to the market as a whole, to growth companies and multipliers – globally, the reality is that the market peaked around February-March. “Walking half a step back in multipliers. Most Israeli companies went on the market in the first half and they are not immune, they suffer as the whole market suffers.”
Ilan Paz / Photo: Eyal Yitzhar
In companies that have been merged into SPAC, he identifies another phenomenon: “There has been a total deterioration in the product. Funds that normally invest in PIPE (a private placement that accompanies a merger with SPAC) should in fact verify the value that the company and SPAC agreed on. In the last six months, institutional investors have been saying, ‘The valuation is not in the right direction at all, we are not interested in joining.’ It is that in all the companies that have entered the market in a merger with SPAC, the value decreases, it is a matter of demand and supply. “
I mean in companies that have done IPO, the market is the cause of the weakness?
“Yes, there is more function of the market. The market is less good. They say the market is still good and that is true in a perspective of 5-10 years back, but compared to the beginning of the year it is less good. The companies that went on the market in the first half of the year are suffering.”
What caused this, macroeconomic effects or a change in investor tastes?
“To a certain extent – both. We clearly see an impact of macroeconomics, we made two issues last week, of Thyme and Camtech, and despite the successful issues we hear voices about inflation that raises its head, about a serious rise in supply chain and labor costs, about fear that there will be Raising interest rates is not good for the capital market. There is no doubt that there is more concern than there was six months ago. The second thing has to do with volume: in the end, all IPO pricing is a game of supply and demand. In 2021 there was so much supply that institutional bodies “They lift their legs from the gas, but do say, ‘Let us take a breath before the next issues.’ This is a crazy year.”
“There is demand, but 2021 will not repeat itself”
In some of the issued companies, we are now coming to the end of a six-month lock-up period that prevents shareholders from selling shares in the market. Does it also affect stocks, or is it already embodied in prices?
“This is not something new, because it is already declared on the day of the issue and everyone knows when it happens. There is the dynamics of the shareholders, what to do – an orderly secondary issue, or each for himself. By and large, it is public information and stock prices are supposed to embody harm.” .
To what extent does the strong shekel affect Israeli technology companies traded on Wall Street?
“Companies always grumble that strong shekels are bad for them, and that’s true – after all, some of the companies’ expenses are in shekels and the income is all in dollars, so this is a problem. They all face a cost base that exceeds income. “They received a translator for NIS 3.8, today it is only NIS 3, so they are upset. That is the reality.”
Despite all the factors that are making it difficult, there are a number of stocks that have stood out favorably since their IPOs – Monday, Global-E and Sentinel One. How do you explain that?
“All of these companies had financial results that were better than analysts had expected after the IPO, and forecasts that were even better. It has a very positive impact on the stock.”
What do you expect to see in 2022? There is already a slowdown in the number of issues and mergers of companies from Israel.
“To expect the data of 2021 to repeat itself is ambitious, no one is expecting such a thing. People are still optimistic about where the market is today, and there is still a great deal of demand from the big institutions abroad for growth companies, clearly seeing that. I expect the first half of 2022 to be good, but again, it’s very hard to believe that the 2021 data will repeat itself. It goes back to the macro issue: inflation is already being felt, and governments will have to respond. “When interest rates rise, it’s having a fairly immediate effect on bond and stock markets and calming the trend a bit. ‘