Going Public: Israeli Companies Weigh Europe vs. U.S.

Israel has become the largest source of foreign listings across Europe with a total 84 companies having listed on European exchanges. But the economic crisis disrupted the trend and has forced dozens of Israeli companies to delist and look for other options in Europe and beyond.

It was a story arc even Dori Media Group’s television drama writers might have struggled to imagine. Six months after a low point of abandoning its listing on the London Stock Exchange’s Alternative Investment Market (AIM), the Israeli company’s CEO Nadav Palti was presiding over the International Emmy Awards alongside a cast of presenters that included Lady Gaga.When he took the reins at Dori Media, Palti was determined to take the company — known for exporting the Latin American formula for telenovelas, limited-run TV drama series, to the rest of the world — to a new level. Dori Media soon joined a wave of 20 Israeli companies that listed on European stock exchanges in 2005, a watershed year when Israeli companies for the first time launched more initial public offerings and raised more money on European markets than in the U.S.

Listing on the Nasdaq had previously been the Holy Grail for Israeli companies, but the Sarbanes-Oxley Act of 2002 increased legal and auditing fees for public companies, pushing them to explore other options; many went to Europe. For companies like Dori Media, New York was never an option, says Palti (pictured on Informilo's home page). “We knew we wanted to go to London. For us it was the best opportunity. We were too small to go to the U.S. in those days.”“We gained recognition, we gained awareness, we gained goodwill, which helped us a lot in the media field,” he says of the London IPO that valued the company at $41.9 million. “We raised money and gained other advantages. If I were to compare my company to others, we made a huge jump.”

Thanks to companies like Dori Media, Israel has become the largest source of foreign listings across Europe with a total 84 companies having listed on European exchanges. But the economic crisis disrupted the trend and has forced dozens of Israeli companies to delist and look for other options in Europe and beyond.

Developments went off-script for Dori Media when the economic crisis hit in September 2008. Despite strong results, investors sold off shares and its low evaluation on the AIM left it unable to raise more money on the market, says Palti, whose management experience includes leading a commando unit in the Lebanon War and founding his own media and advertising company in 1999. The lack of resources was felt as Dori Media had to abandon initiatives like its bid to build its Novebox.cominto the Netflix of Latin America, Palti says.

So last year, Dori Media became one of 27 Israeli companies, out of 43, to delist from AIM. “It was mission impossible. So we took a decision to do the delisting, but it opened the opportunity to raise money from a private investor in Germany — which happened because we had been a public company that was listed on the London Stock Exchange,” he says.

Although the experience did not end the way Palti had planned, he says it helped the company grow and raised its profile internationally, leading to opportunities such as his International Emmy role last year. Dori Media is now more than twice the size it was when it listed and with turnover rising to $50 million last year from $12 million in 2005. This year turnover is expected to be $55 million to $60 million, with earnings before interest, tax, depreciation and amortization (EBITDA) of $20 million, up from $17.7 million last year, Palti says.

Israel’s strong presence on European boards is no surprise to Edouard Cukierman, founder of Cukierman & Co., Israel’s leading investment house, which has helped broker deals worth more than EU3.5 billion since it was founded in 1993 — mostly in Europe. Israel’s small market and limited resources make it natural for Israeli companies to look abroad for financing.

“They are thinking globally from day one for their products, so why not for their fund-raising efforts?” Cukierman says.

Despite Europe’s current difficulties, Cukierman still advises Israeli small to medium-sized companies to focus on the continent instead of the U.S. “It doesn’t mean that one cannot find the money in the U.S., but it’s much harder to raise money in the U.S. than in Europe,” he says.

Some European stock exchanges continue to court Israeli companies. The London Stock Exchange announced changes this month intended to make it easier for smaller companies to list. But Cukierman says regulatory hurdles are not the reason why the pipeline of Israeli IPOs has dried up.

“The process is quite easy right now,” he says. “The challenge is not the complexity of the process. The challenge is to try to attract investors, to attract the investment community that has been burned by smaller-cap companies and by companies that are in the technology field.”

Cukierman also sees the landscape changing firsthand through his firm’s Go4Europe conference, one of the biggest Europe-Israel events. At past conferences, the heads of five European bourses used to argue on stage about why their market was the best for Israeli IPOs. “This is less the case today because many of those European markets are in crisis situations and it’s become even difficult for Europeans to go public on those markets,” he says.

Cukierman founded the conference in 1997 when he was having trouble convincing Israeli companies that Europe was an alternative to the U.S. When the Israel Venture Association, or IVA, which promotes the development of the high-tech and venture capital sectors, would not give him a speaking spot at its conference, he organized his own. In the first year about 50 people attended; last year, 1,200 participated, a third of them from Europe, Cukierman says. About 200 are signed up for this year’s edition on October 29th.“The future will depend on how Europe rebounds from the crisis,” Cukierman says.

This is where business ties to Israel might help Europe, he says. Cukierman believes European companies can learn from the “start-up nation” how to be leaner and more efficient. One group of Spanish venture capitalists recently visited Israeli high-tech firms looking for lessons to help Europe’s third-largest economy. When overseas companies acquire or invest in Israeli firms they are not just buying a business or product but a mindset, Cukierman says.

As Europe recovers, Cukierman predicts Frankfurt may overtake London as the main destination for Israeli tech IPOs and that Zurich will attract more Israeli biotech companies.But in the long term, Israeli deals could make the same shift as exports, Cukierman says. As trade with the U.S. and Europe falls, Israeli exports to Asia and the BRIC countries continue to rise. “In the future, there might be openings for Israeli companies to look at markets other than the US or in Europe, perhaps in the Far East in Hong Kong or Singapore,” Cukierman says.

His own firm is looking at BRIC opportunities by establishing Russia- and China-focused versions of its Catalyst private equity funds.

In the meantime, despite delisting, Dori Media has continued to act like a public company. It has been reporting regularly and paying dividends to investors and shareholders who decided to keep their shares. The company is now working on mergers and acquisitions to grow.

“We believe in the future we will go back to the market — maybe to the main list in London, or maybe in the U.S. or maybe in Hong Kong — if Hong Kong turns out to be the proper exchange where we want to really stay,” says Palti, adding Dori Media’s growing Asian presence includes channels in Singapore and Indonesia.

“We want to jump to the next level,” he says. "If we become big enough, which I believe will take us around one or two years, then I hope the market will be ready again and in better condition than today so we can do a relisting.”







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