A month ago, Israeli fintech company Nayax (TASE: NYAX; Nasdaq: NYAX) completed an offering on Nasdaq, raising $68 million. Its three co-founders and senior executives - CEO Yair Nechmad, his brother Amir Nechmad, who serves as a director, and CTO David Ben Avi -- sold shares for an aggregate value of $26 million (about NIS 100 million). The offering came a year and a half after Nayax began to be traded on Nasdaq, and almost three years after it was first floated in Tel Aviv, in what was hailed as the largest ever offering by a high-tech company on the Israeli stock exchange.
Nayax was founded in 2005 by the Nechmad brothers and Ben Avi. It started by developing payment solutions for automatic vending machines, and expanded to other solutions that help its customers grow. Today, it offers solutions in cashless payments, management systems, and applications to increase customer loyalty. According to company data, Nayax connects and manages over a million points of sale in 120 countries, and links to more than 80 financial institutions.
The Nasdaq offering came after Nayax’s share price had risen steeply since the beginning of the year. "I didn't want to sell," CEO Yair Nechmad maintains in an interview with "Globes." "My attitude is that I believe in the company, and don’t want to sell shares. We could have not made the offering, but we had our reasons."
Which are?
"First of all, we wanted more liquidity in the US market. Investors and analysts told us they wouldn’t be able to recommend the stock before they knew that people who invest would also be able to sell, and not just after 100 trading days. Secondly, we wanted to have more analysts covering the stock, as a further ‘sales force’, and today the stock is covered by six analysts.
"Another reason for selling the shares was that I can't just hold cash at the company. Cash is meant to strengthen the balance sheet and allow for additional acquisitions in the future, and we don’t need more than that. But the Americans told us that the offering had to amount to at least $80-90 million. So, we 'stretched' it as much as possible and the three of us sold as shareholders."
This is not the first time that the three Nayax founders have made a share sale. In the Tel Aviv IPO, together they sold stock for an aggregate amount of NIS 205 million, of which NIS 51 million went to CEO Nechmad.
"Most of the sale went to paying back our personal loans" Nechmad says. We are three partners, Amir, Dudu (David Ben Avi), and I and we went public as a company in which the shares were all held by the owners. We didn’t always have capital, so on a personal level, we were very leveraged with loans."
Was it something ideological, not to bring investors or VC funds into a privately-held company?
"It's a very nice story. We were always meeting investors and we always needed money, so we had a dilemma. As it turned out, in the end we always said we believed in the company, knew what would happen in the future, and since our most valuable asset was our equity, we took out loans. Looking back, we did very risky things on a personal level, which is not something I would recommend doing, but it worked out for us."
In the 1990s, Nechmad served as marketing manager for Coca-Cola in Israel (at the time when competitor Pepsi was entering Israel). It was there that he got to know the retail sector and its processes: logistics, sales, marketing, and the like. At that time, Coca Cola distributed Eden Springs (Mey Eden) bottled water products, and Nechmad’s next career move was as manager of Eden Springs.
Nechmad said in a past interview that he met Nayax co-founder David Ben Avi by chance, when the latter was working on developing a solution to do with credit cards. Ben Avi consulted Nechmad, and that's how the company began. At that time, vending machines did not accept credit cards and there was an (unsuccessful) attempt to receive payments via text message (SMS). Nayax developed a payment solution that addressed the customer directly, rather than marketing through credit card companies.
"We got stuck because the stock went down"
Nayax went public in Tel Aviv in May 2021, the end of the peak period for technology IPOs, and raised NIS 462 million (not including the founders' offer for sale), at a pre-money valuation of $930 million before money -- over NIS 3 billion -- the type of big numbers that characterized Israeli hi-tech IPOs in the US.
The flotation was structured as an international offering. The lead underwriter was Jefferies, and the investors were also from overseas. The move was intended, among other things, to create an infrastructure for a follow-up flotation of Nayax on Wall Street, and thus to attract more large companies, mainly from the technology sector, to the Israeli stock exchange.
However, because of the shift in the markets, this did not happen. "Our plan was to float the company on Nasdaq right after that, but we got a bit stuck because the stock went down, and we didn't want to dilute the investors," says Nechmad. In retrospect, he claims, "It worked very well for us. I really like the Israeli investors and the Americans; each has slightly different tastes, and we do well for our investors."
Only after a year and a half later did Nayax complete the maneuver when it was listed for trading on Nasdaq, without an offering. In May 2023, the stock was traded at a low of about $16.4, but it has since recovered, and has risen about 53%, to a current market cap of $912 million (almost NIS 3.5 billion, which is still 8% lower than the Tel Aviv IPO price). The three founders currently hold about 66% of the company's shares.
Still seen as a growth company
What was the reason for the rise in the past year? "Nayax is a company that not everyone understands, but when you look carefully - we’ve been a public company for three years and everything that we said we would do, we’ve done," says Nechmad. "We said we would move to positive EBITDA in 2023, and we did. This year, we’ve said we’ll be cash flow positive. The recognition of consistent performance is very important.
"That’s the story of Nayax. When we went to the market in 2021, of course, investors had a different appetite for growth companies. We were given a valuation that we were happy with, and then, appetites changed, the party was over. We didn't go down much, but we did go down.
"After three years as a public company with continual growth that is moving to a profit model, invest valuing us as such. That’s what’s happened in the last six months. By the way, a year and a half ago, we said we would reach $1 billion in revenue in 2028, and we would do it like that. Maybe they raised an eyebrow then, saying, 'You're young, you don't understand.' Now, we're showing them we can make the leaps in growth, most of which is organic, by the way."
Nechmad points out another important factor for the company. "The customer stays with us for decades. This gives business certainty."
In 2023, Nayax grew by 35.7% to $235 million revenue, a GAAP net loss $15.9 million, and $4 million EBITDA. In 2024, the company expects growth of at least 38% to $325-335 million revenue, with positive free cash flow, and $30-35 million adjusted EBITDA.
"We’re a payments company"
Nayax recently announced the acquisition of Brazilian company VMtecnologia for up to $22 million. Before that, it acquired US-based Retail Pro for up to $36.5 million, and announced the completion of an Israeli acquisition, Roseman Engineering, bringing it into the fuel station/EV charging station sector.
Nechmad: "The acquisitions we’ve made recently are an expression of our inorganic growth. We’re hungry to enter more markets: the Brazilian market is amazing and large; Retail Pro gives us better access to the retail sector; and Roseman brings us into the fuel station sector.
"We’re a payments company, which is the component that becomes the center of gravity for every retailer, because it holds the data, and is therefore a main part of customer management," adds Nechmad. "Nayax works with over 50 clearinghouses around the world. We know how to do transactions in accordance with the regulations, and we see that everyone wants to concentrate all their activities with one provider who solves all their problems for them."
The $1 billion revenue target also includes additional acquisitions, but, says Nechmad, "In our business, there aren’t many significant acquisitions to be had that will bring in hundreds of millions. It’s very hard to find those, though that doesn’t mean there won't be any. Generally, we’re talking about acquisitions that will enable us to enter additional markets or reach more distributors around the world".
Nechmad adds that today, no other player offers customers a comprehensive solution, and every competitor only has some of what Nayax offers. This has also led to a change in the company's customer mix, which for years consisted of small owners of vending machines.
What are your main challenges today?
"There’s one major challenge: we went through all the development stages of a company by the book, from idea, to startup, to growth. We’re now in the interminable stage of scaling-up to create a 'sales machine.' The challenge is to reach all the markets, all the customers, with sales processes that are as fast as possible, tight management backed with data. It’s is like re-building the enterprise from scratch.
"We’ve made investments in technology in recent years, and we’re in the process of improving internal business processes, to produce the maximum from these investments.
"We need to grow revenue by $100 million a year, and then by $150 million, and so on. There is a market, and I see no reason why we shouldn't be able to do it."
Published by Globes, Israel business news - en.globes.co.il - on April 28, 2024.
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