The drama surrounding software company Eshbel came to a quicker than expected end today. Private equity fund Fortissimo Capital submitted the highest bid in the pricing process for the company, which was put up for sale after becoming insolvent. Fortissimo's winning bid was NIS 192 million. The other serious contenders were public companies Hilan Tech Ltd. (TASE: HLTC) and One Software Technologies, which made bids close to Fortissimo's.
The auction of Eshebel was one of the most interesting events in the local computing market for a long time. Eshbel, which was founded in 1986, develops enterprise management software, and was fairly successful. Along the way, however, founder and CEO Yossi Shaham and his partner Nava Enosh became entangled in false reporting of income, tax avoidance in the millions of shekels, drawing cash for personal requirements, running two sets of books, and other offences, as they admitted in a plea bargain with the Tax Authority a few years ago. Under a court ruling, the company is obliged to pay taxes (mainly income taxes and VAT) to the tune of over NIS 100 million.
The success of the company's software products, "Priority", for managing enterprise human resources, logistics, and operations, and "Zoom", for accounting, was mainly in the small and medium-size business market. According to the company's website, its software is installed at over 6,000 enterprises around the world, with over 200,000 users.
Eshbel has annual revenue of NIS 50-60 million, and enjoys high profit margins, positive cash flow, and potential for international expansion. Despite the business success, the company's obligation to the Tax Authority brought it to the brink of insolvency.
A few weeks ago, the court appointed trustees to oversee the sale of the company. Up to that point, the offers to buy were mainly from Hilan Tech, which teamed with Eshbel's management; Fortissimo; and two finance houses, Leader and Clal Underwriting, with the bids ranging around NIS 100 million. The auction brought more bidders, and led to higher offers.
The amount bid by Fortissimo will enable the company not only to pay its tax debt, but also to settle the claim brought by senior employees, who hold a minority stake. They claim to have been entitled to part of the company's profits, and since the company's reports of its profits were incorrect, they say they are owed NIS 47 million, or 39% of the profits. These employees will be among those who will benefit from what turns out to have been a successful exit.
Published by Globes [online], Israel business news - www.globes-online.com - on December 25, 2013
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