The year of 2010 wasn’t outstanding when it came to venture capital and the funding of start-ups, but it ended on a positive note, with 32 fourth quarter IPOs of venture capital-backed start-ups on Nasdaq, double the third quarter’s figures. For 2010 as a whole, according to Thomson Reuters, there were 72 IPOs of companies of that type, making it the most active year since 2007. There were 400 acquisitions of venture capital-backed start-ups the biggest number since Thomson Reuters began keeping track, in 1985.
With those figures, US investment banks are displaying increasing interest in Israeli technology companies, and the fact that only a few have captured Wall Street recently doesn’t bother those investors from meeting with companies and the venture capital firms that fund them, in an effort to make deals.
One bank that is planning to carry out transactions this year, primarily with Israeli technology companies, is US bank Wells Fargo, which manages $1.2 trillion. The bank’s first deal in Israel was in 2007, and since then it has operated below the radar and carried out other transactions. TowerJazz (Nasdaq: TSEM; TASE: TSEM) borrowed $45 million from Wells Fargo, the bank was involved in the sale of information security company Aladdin to hedge fund Vector Capital for $160 million, and was involved in the sale of Raytel Cardiac Services to Philips for $110 million.
Wells Fargo operates in Israel through a strategic partnership with investment bank Avalon Capital, which was established in 2004 by founding partner Joey Sabet and Jonathan Schwartz. Avalon Capital has other investment banking activity aside from its work with Wells Fargo.
Sabet has experience in investment banking and venture capital. He was a partner in investment house Cukierman’s Catalyst fund, and prior to that he advised companies on strategic agreements, distribution, and licenses. Schwartz was the manager of business development and finance at Pronto Diagnostics Ltd.
“We’re currently working on several deals in the medical devices sector,” Sabet tells “Globes”, “and it appears that at least one of them will come through in the next few weeks.”
Schwartz adds, “2011 will be a good year, we have a promising deals pipeline. Israel is a target market for Wells Fargo. In 2010 there were signs of recovery, and this year the market will develop. I believe that this year there will be mergers and acquisitions, but also IPOs in the second half of the year.”
Globes: Do you mean fire sales sales of companies at low valuations?
Sabet: “Not at all. The giant US firms will gain from the improved economic situation, and will buy other companies in order to bring more products to the market quickly. These products can be found in Israel.”
Sabet says that when giant companies buy firms with sales of up to $50 million, the deal is based on the technology. “Revenue like that doesn’t move the needle on the meter of the big companies, but if they like the technology and believe that within 2-3 years they will be able to triple revenue, they are happy to pay and buy. Today there are several Israeli companies like that which are being checked by potential buyers."
Avalon Capital was involved in the past in the public offering of Leadcom on London’s AIM, and later on advised on the public offering of Formula Telecom and the Nasdaq IPO of Scopus. In the past year the firm was involved in the acquisition of Dekolink assets by Axell Wireless.
“Later on came the economic crisis, and the investment banking market changed because of it. At that time we signed the collaboration agreement with Wells Fargo,” says Sabet. The Avalon Capital partners say that since signing the agreement, Wells Fargo executives arrive quarterly, and express interest in the Israeli market. The bank’s main focus is on financial software companies. “As a customer of Israeli companies like SuperDerivatives, OpTier, and Payoneer the bank is familiar with the advanced technology, and is interested in it,” explains Sabet. He adds that Wells Fargo is also interested in companies in sectors such as security, transport, industry, and technology for the medical industry.
There is another mutually beneficial aspect to Avalon Capital’s partnership with Wells Fargo, an aspect which is perhaps more beneficial to Avalon Capital.”There are cases when a company is too small for Wells Fargo. Then we help, as Avalon Capital. Everyone gains Wells Fargo keeps in close contact with interesting companies that may grow; the company stays in contact with Wells Fargo; and Avalon Capital itself gains from the deal,” says Sabet.
Published by Globes [online], Israel business news - www.globes-online.com - on January 23, 2011
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