In recent months, the number of initial public offerings by companies has been declining Israeliness on Wall Street, mainly in the field of technology, after the highs recorded in May-July. At the same time, the number of issues on the Tel Aviv Stock Exchange has been dripping since the beginning of the year, in part due to the particularly poor performance of most of these issues to investors.
A recent survey by Globes shows that almost all of the Israeli issues on Wall Street caused considerable losses to investors, while in Tel Aviv the rate of initial issues from the last year in which a negative return was recorded was about 50%.
“The market in mania-depression”, diagnoses the situation Adv. Oded Har Even, managing partner at the law firm Sullivan & Worcester, which specializes in the capital market, and whose firm represents Israeli companies traded on Wall Street. Adv. Reut Alfia, She is also a managing partner in the firm, adding that “it was clear that the celebration should end sometime.”
That is, the celebration is officially over?
Mount Stone: “In small cap companies (small in American terms) the situation today is the worst since 2015. There are companies whose shares have been cut by tens of percent.”
Alfia: “One of the companies we are lending has shown its best results in years, and the stock has fallen. At least the Israeli companies on the Nasdaq have already raised money, and are less sensitive to the stock falling. They can still raise money, compared to the situation in the market in Tel Aviv, where it is difficult to see companies making initial or secondary issues. “
According to Mount Stone, on Wall Street it is always possible to raise money in secondary issues, but in such a period the discount must be taken into account in the raising, and perhaps even a combination of options in the raising.
“IPOs (initial public offerings) are there all the time too. Just the valuations ‘in the lows’. There was one day last week where stocks went up insanely, and suddenly all investors became positive, but that’s not an indication of anything; Wall Street has become one big attention deficit disorder.”
Har Even adds: “Small companies always have deals (secondary issues, NIS). A large company with half a billion dollars in the bank can wait. A small company that burns money will raise money. It is possible that the investors in the fundraising will shorten it, go in and cover Themselves, but even when the market is not good, the small companies will always have a way to recruit. “
Alfia believes that one of the lessons for companies is not to be too “grid”. “If the market is in a position to raise – raise, do not wait for it to go up further. Companies are afraid of dilution in raising, but the market proves that companies that were smart enough to raise money in a calm day, and have opportunities for mergers and acquisitions.”
“When the window in Tel Aviv closes – on Wall Street it opens”
Sullivan is currently working on a number of IPOs in the U.S., estimating that all companies will complete the offerings despite the market situation, “because even if the market falls, the money still exists,” Alfia says.
She said, “There was a time when the rate of IPOs in Tel Aviv was higher than on Wall Street. “When the IPO window in Tel Aviv closed, and it started to close six months ago, it was then that the window opened on Wall Street. Today we accompany technology companies that failed to issue in Tel Aviv, because the window closes, and they are now going out to NASDAQ.”
how? These are usually different types of companies going public in Tel Aviv.
In Tel Aviv, the recruitments are smaller, but it also depends on what the company does. “For example, the market in Tel Aviv has been difficult for years with biotech companies, it is difficult for it to do an analysis for them and that limits the companies to a very specific market value, which does not happen on Wall Street.”
According to them, “the past year has been very unusual in IPOs in Tel Aviv, which many institutionalists have entered. “Now, when suddenly there are not many initial public offerings in Tel Aviv, and there are no secondary public offerings in advance, then it is clear that we are returning to the usual route of Wall Street.” Beyond that, they point out that at least once a week they meet with companies that trade in Tel Aviv and are also considering registering on Wall Street as dual companies.
What about other stock exchanges, like Australia, London, Canada?
Alfia: “In my opinion, Israeli companies are sorry for the effort. I do not understand companies that are testing either Tel Aviv or Australia or London – in terms of investor relations, Tel Aviv is better.”
Mount Stone: “Obviously if someone offers you a skeleton with $ 20 million in Canada, go for it, follow the money. But in principle it’s better either Tel Aviv or straight to Nasdaq.”
“US Authorities Do Not Die for Spacks”
One of the most notable phenomena of the beginning of the year was the offerings of SPAC companies, inactive companies whose purpose is to recruit from investors and find an existing company for purchase, thus bringing it to the public market. The trend has weakened in recent months due to a change in investor tastes and increased regulation. According to Mount Stone, “SPAC issues are still underway. But U.S. authorities are not dying for SPACs, and are starting to make it harder.”
Alfia: “It is possible that there will now be more mergers for Spacks, because it creates more certainty for the company. In an uncertain market, the procedure for entering SPAC as a way to become a public company is more certain than an IPO. If more companies choose this way, We will also see more SPAC issues. “
Mount Stone adds that SPAC companies that have already raised money in previous months are “frantically looking” for buying targets because their watch is ticking – usually, companies are required to find a buying target within 24 months, or will have to return the money to investors.
Also remember the issue of redemptions – SPAC shareholders have the option to redeem their money if they are not interested in participating in the merger transaction offered by the SPAC. According to him, today many companies that embark on such a move estimate in advance that they will receive only a small part of the SPAC money, given the high redemption rates in the market.
What about mergers and acquisitions (M&A)? There have been quite a few acquisitions recently made by Israeli public technology companies.
Alfia: “We will probably see more and more. Companies that in the good times raised money will use it, among other things in light of the stock situation, because they are thinking of how to bring value in such a situation, and the answer could be purchases with cash in hand.”
What will 2022 look like?
Har Even: “It will be an interesting year, but it is difficult to know, the prophecy was given to fools. Arik Sharon said in the past in the context of politics that one should always stay on the wheel; in the capital market you are on the wheel – today the stock went down, tomorrow it will rise. “It is possible to recruit. In the public market, even in 2008 companies were recruited, everything is just a matter of valuation.”