"Over the coming year, at least six Israeli venture-backed companies will hold successful IPOs on Nasdaq. Investors are showing interest in Israeli technology companies, and I believe there's a big opportunity here."
The person behind this optimistic prediction, the like of which we have not heard for many a year, is David Enzer, a managing director at US investment bank Roth Capital Partners, which specializes in banking services for small-cap companies.
Enzer will be in Israel at the end of the month, to participate in the Ernst & Young-Globes Journey Conference. In an exclusive interview with "Globes" he declares, "In the next year, there will be a revival of interest among US investors. We are seeing extraordinary Israeli companies, particularly in semiconductors, media, and telecommunications."
Roth Capital, based on the West Coast, was founded in 1984. In the 1990s, it was an underwriter for IPOs by small cap companies. With the changes that the public market underwent, it began to promote PIPE (private investment in public equity) financings. Given recent SEC rule changes allowing shelf offerings for small cap companies, Roth is very active there.
Roth was also one of the first banks to offer services to small Chinese companies active in the US and traded there. It is a full-service investment bank, active in fund raising, research coverage, trading, and mergers and acquisitions. To date, Roth has helped its customers raise $10.6 billion, and it has been involved in 150 mergers and acquisitions. The focus on companies from China companies finds expression in the fact that, since 2003, Roth has completed more than 67 deals worth a total of $2.8 billion in Chinese companies listed in the US.
The first deal in which Enzer was involved in Israel was the financing of ART Advanced Recognition Technologies in 1998. The company was sold to Nuance Communications in 2004. Roth Capital itself has been involved in various kinds of deals with another ten Israeli technology companies, among them Nova Measuring Instruments Ltd. (Nasdaq:NVMI; TASE:NVMI), Lanoptic (EZchip Semiconductor Ltd. (Nasdaq: EZCH; TASE:EZCH)), Pluristem Therapeutics Ltd. (Nasdaq:PSTI; DAX: PJT), and Orckit Communications Ltd. (Nasdaq: ORCT; TASE: ORCT), and also in non-technology companies, such as G. Willi-Food Investments Ltd. (TASE:WLFD).
Given your optimistic outlook, do you understand why there are those ready to write off Israeli high tech and venture capital?
Enzer: "I'm surprised to hear it. From here, it looks as though there are exciting companies in the Israeli market, and as though there will be no shortage of investment banks that will want to take them public.
"I hear that the atmosphere is sour, but we see in Israel opportunities and successful companies, chiefly in semiconductors and infrastructures. They have a fantastic business. Some of them are growing at rates in the hundreds of percentage points, don't need money, and look like they will become market leaders. I'm talking about companies like BroadLight, Siano, and Provigent."
According to Enzer, Roth's advantage is its experience in providing services to small companies: "We don't work with companies that have valuations of billions of dollars. Over the years, we have mostly lead managed deals for small cap companies that have market caps of $100 to $500 million. We know the market very well, and we know the fund managers that care about small caps; there are a lot of them."
The fear is that Chinese companies will take the place of the Israeli companies that used to reach Nasdaq in the past.
"If you look at the Chinese companies that have made successful IPOs, you'll find that most of them are consumer or industrial services companies, and not necessarily technology companies. They attract a certain kind of investor. Investors who seek technology companies look at companies in Silicon Valley and in Israel."
Enzer does not sound concerned about the high threshold set by Nasdaq for companies that want to join. He reckons that "the market will now switch to growth" and says with confidence that "there are many good, promising companies."
Enzer points out that, despite the lack of clarity in the capital markets, there is a list of 100 companies registered for IPOs, a third of them technology companies. "Companies with revenue of $40-50 million are already on the runway," he says.
The feeling is that only profitable companies, with annual revenue in the hundreds of millions of dollars, are fit to make IPOs.
"There are several companies registered for flotation with revenue of $50 million, most of them growing impressively, and investors also want to see positive EBITDA. But even companies close to profitability, that show future growth and will be profitable within 3-4 quarters, interest investors."
Published by Globes [online], Israel business news - www.globes-online.com - on October 21, 2010
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