Many investors worldwide tend to employ what is sometimes referred to as the “Midas strategy.” The idea is to mimic the investment strategies of the great investment “gurus,” who have a reputation for possessing a “golden touch.” In Israel, perhaps there are no gurus with the stature of Warren Buffett, but the major automobile importers, or most of them, have that same “Midas touch” reputation, which has helped them fit in well over the years in very high places in the net-worth and liquidity rankings among Israel’s businesspeople.
This reputation was reinforced by investment in Mobileye (NYSE: MBLY), in which many senior auto-industry executives participated from the very early stages. These investments yielded profits of hundreds of millions of shekels for investors like Shmuel Harlap and Gil Agmon, who waited until the IPO last month. But other auto-importers in the sector, who sold their shares at earlier stages, earned massive returns on their investments as well.
Mobileye is just one example. In recent years, auto-importers have invested in numerous start-ups and technology companies, most of them still operating under the market’s radar but which are, in the long term, likely to have serious potential - in the auto-industry and in other sectors as well. On behalf of our readers who may be interested in employing the “Midas strategy,” we have conducted a survey of the landscape, and brought a few of them to light.
First, a disclaimer: not all the following investments will turn to gold, and the perception of risk among wealthy businesspeople with high liquidity, such as auto-importers, is different from that of the small investor. In addition, the IDB Holding Corp. Ltd. (TASE:IDBH) investment scandal, for example, illustrates the fact that one must not only know when to buy like the “major players,” but also when to sell like they do.
BrightWay Vision
Lubinski is in, is Allied next?
BrightWay Vision was founded in 2010 as an Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT) spin-off, and its product is intended for a similar market to that of Mobileye in the automotive industry, though the technology is very different. Both are hazard-avoidance systems for drivers, but BWV’s system is based on technology that was developed for the battlefield and is able to identify objects during night driving and in inclement weather (rain, fog, etc.), with a range of up to 250 meters. Considering the fact that most road accidents take place at night and in inclement weather, the potential of this system is clear.
An important side-note: what will determine the success of the system in the commercial market is the final unit price to the manufacturer and the consumer. In recent years, night-vision systems have come onto the market, and they are still available as an optional extra, primarily on expensive luxury vehicles. These options cost thousands of dollars, unlike Mobileye’s system, which has a manufacturing cost that is smaller by a few degrees of magnitude. If the cost of this technology is reduced, it is likely to become “the next big thing.”
Either way, the automotive industry is already expressing interest in BWV’s technology. According to the company, “After a development-phase of a few years, the concept-development phase has been completed and a sample system for vehicle use has been built. The system was successfully tested by leading auto-manufacturers, including General Motors, Volvo, Peugeot, and others. The company is now continuing with detailed prototype planning.”
The company further said, “Seed funding was invested in 2011 by major local auto-importers.” If this reminds anyone of Mobileye’s fundraising model, it is likely not accidental. So, who are the investors? One of the first companies to join the circle was Lubinski. Lubinski has declined to publicize the size of its investment, but has stated that BrightWay Vision’s technology answers a real industry need and been very warmly received by auto-manufacturers. Rumor in the auto-industry has it that Allied Holdings is in talks to enter as a strategic partner, and it would not be surprising if other “colleagues” don’t wait around for an opportunity.
Gil Agmon’s new baby
Fledgling Argus Cyber Security was founded last year and is now taking its first steps. Some big names from the high-tech industry are listed among the company’s founding members, including Zohar Zisapel, Oron Lavi, Yaron Galula, and Ofer Ben Noon. The company’s product and business model are geared towards the relatively distant future, for the “networked car” era. In this era, all vehicles will be “mobile data terminals” of sorts, dependent upon the Internet and the Cloud, not only for entertainment and navigation, but also for serious issues such as safety and maintenance, traffic management, and even automated driving. According to the company vision, as vehicles become “mobile data terminals,” cyber threats are expected to arise as well, which are familiar from corporate and home networks: viruses, and hackers who connect remotely to the vehicle management system, terrorists, and more.
Argus’s technology, which many Israel Defense Forces (IDF) elite military intelligence 8200 Unit alumni are involved in devloping, is meant to provide auto-manufacturers with solutions to these threats - a sort of a Check Point on wheels, if you will. Like all technology intended for the automotive industry, the business potential is in volume: it is enough for one serious auto-manufacturer to incorporate such a hardware or software solution in its vehicles in order to guarantee millions of annual installations.
For the time being, this is an answer to a question that has not really been asked yet. As of now, vehicles that are continuously connected to the Internet are just beginning to appear on the market, and those that do exist are focused primarily on entertainment, leisure, and comfort applications. Industry experts estimate that “networked cars” will only arrive on a serious scale towards the end of the decade, but we must remember that auto-manufacturers are already working on development plans for future vehicles four or five years forward, and no one wants to be left behind.
According to company statements, Argus raised $4 million in a Series A offering, which took place in early June of this year, and in which investment funds Magna and Vertex Venture Capital were the primary investors. Later the same month, private investors made seed investments. The identities of the investors and the amounts they invested were not released, but anyone who looks at the company’s advisory board will find our friend Gil Agmon, controlling shareholder of Delek Automotive Systems Ltd. (TASE: DLEA) and one of the biggest beneficiaries of the Mobileye IPO listed there. The company website states that “Gil has extensive automotive knowledge covering both mass and luxury automakers, as well as deep familiarity with the car industry globally.” It is unclear how much Agmon invested, but it is safe to assume that his investment will bring investments by “colleagues,” and perhaps an investment by Delek Automotive Systems as well. Industry sources have said that Argus attempted to attract additional auto-importers but it’s not yet clear with what degree of success.
George Horesh and Union
Businessman George Horesh, the Toyota importer, stays out of the spotlight and his exposure to public companies is minimal. Most of his varied investments beyond the automotive sector are carried out via his investment company, Union Investments (formerly Ronin Investments).
But those who believe in the importers’ “golden touch,” who imitated some of Horesh’s known investments in recent years, could have collected nice yields. One example is his investment in international automotive distributor Inchcape, which is traded in the UK, and is active globally. Horesh invested in Inchcape in early 2009, during one of the company’s, and the global automotive industry’s, most difficult times. At that time, the world was still in the throes of the financial crisis and the automotive industry specifically was thrown into one of the most difficult crises in its history. Governments were forced to provide lifebuoys in the billions for their automobile manufacturers, which then laid off workers, closed factories, and sold off entire brands. Inchcape also suffered, and its stock was at a low.
Horesh was very optimistic about the potential recovery in the automotive industry, and of Inchcape, and made a strategic investment in which he personally bought, through Union Motors and through his investment company, nearly 9% of the company’s shares for $70 million. Today, five years later, Horesh still holds most of the Inchcape shares he bought. The stock jumped over the last five years, by more than 300%, but it appears Horesh has no reason to sell: Inchcape had remade itself completely, become a profitable, growing company, and has an aggressive dividend policy, which yields massive sums for its investors.
Aside from Inchcape, Horesh made an interesting venture in high-tech company Advanced Vision Technology (AVT), which develops and manufactures digital vision systems for print quality control. George Horesh invested through Ronin Investments in the summer of 2008 in an offer to purchase, which left him with 40.4% of the company at the end of the process. At the time, it was announced that the purchase was made for $45 million. The company has had its ups and downs, but in three years, its stock has nearly tripled in value. In June, “Globes” reported that the company was “on the shelf” and is likely to be sold to a competitor. The company declined to respond for the report, and, meanwhile, as far as is known, no such deal has taken place, but, if it does, it seems it will yield handsome sums for its investors.
Importer bypass road
Not all start-ups in the automotive sector follow the path of raising money from the auto-importers. Some take a leap and approach manufacturers directly. One such example is IQ Platforms, which also recognized the potential in the “networked car” vision. The company provides a unique platform for developing applications intended for vehicles, and established a branch in Japan. To date, the company has partnership agreements with companies such as Mitsubishi Motors and components supplier Denso, a Toyota subsidiary. It is believed that Mitsubishi also invested in the company, which is currently looking to raise $10 million. The company’s potential depends upon the position the automobile manufacturers take regarding “invasion” of foreign applications in their vehicles. Such an “invasion” could steal business from them - one example is the self-navigation service Waze, which reduces the need for purchasing original navigation and multimedia systems, on which the companies make good money.
Published by Globes [online], Israel business news - www.globes-online.com - on September 1, 2014
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