Can Rad Group survive in post Yehuda and Zohar Zisapel era?

Yehuda Zisapel and Zohar Zisapel credit: Cadya Levy and Eyal Izhar
Yehuda Zisapel and Zohar Zisapel credit: Cadya Levy and Eyal Izhar

"Globes" looks at Rad Group, whose founders Yehuda and Zohar Zisapel, both died over the past year, and which must now move on without two of the founding fathers of Israeli high-tech.

Last month Yehuda Zisapel died at the age of 81, less than a year after his brother Zohar died at the age of 74, symbolizing the end of an era. The brothers, two of the founding fathers of Israel's tech sector, founded the Rad-Bynet Group in the 1980s and in the following decades acted as serial entrepreneurs and philanthropists. Research more than a decade ago at Tel Aviv University found that the Rad-Bynet Group spawned 56 entrepreneurs who founded 111 substantial tech ventures - a number which has almost certainly grown considerably since then.

The Zisapel brothers were born in Tel Aviv in the 1940s to parents who had immigrated to Israel from Poland and opened a shoe store in the city. The Zisapel brothers were encouraged to study and each earned a B.Sc. and M.Sc. in electrical engineering from the Technion, Israel Institute of Technology in Haifa and an MBA from Tel Aviv University. Both were awarded honorary doctorates by the Technion for their contribution to the development of Israeli high-tech and support for technological and scientific education. They donated tens of millions of shekels to the Technion, including for establishing a nano-electronics center in memory of their parents Sara and Moshe Zisapel and a new building for the Faculty of Electrical and Computer Engineering.

The paths of the brothers started out completely differently. Yehuda, who in the army served as a communications technician, was a math teacher while Zohar served in the 81st technological unit and was appointed the youngest head of the electronics department. When he was released, they founded the Rad-Bynet Group together.

Yehuda and Zohar were close, but very different from each other. Yehuda told "Globes" in 2018: "We are aware of our differences and try to reduce friction and reach agreements. Each of us has responsibility for certain issues. After so many years, we know at what level we should share and consult and what we must not in order to make a joint decision."

A senior figure in the industry says that Yehuda "was very introverted, unlike Zohar. He was sparing with words, but always said good things. They had a crazy connection. They really appreciated each other. It may be that in they each focused on different things, but they consulted each other and there was genuine love between them."

Another source, a veteran in the telecom industry who knew them when they were starting out says that both were "fair, honest people, very generous to society. Yehuda was a talented marketing man and Zohar the 'tech leader', winner of the Israel Defense Award. Both were entrepreneurs at heart. Zohar's uniqueness was in choosing successful people for the many projects he initiated."

A source close to the two adds that "Zohar was the brain behind everything. They were both brilliant people, but in my estimation, Zohar's death was the real blow (to the group of companies). In practice, the companies are running, but in the end it was through Zohar that the companies rose to such heights, he had better professional-technological understanding than anyone else, and now there is not always someone to ask questions and mentor. It isn't that there is nobody else but I don't see that they have brought others than can. Besides, Zohar knew how to make decisions. The two brothers made decisions and managed together professionally, but Zohar was more dominant due to his character."

The Group: Dozens of companies and small holdings

The Rad-Bynet Group companies, apart from the real estate arm, are engaged communications equipment. A source close to the brothers says, "The Rad Group, by and large, is all types of telecom, and Bynet takes the solutions and implements them - an integrator. This is a field that was a hit in the 80s and 90s. When they invented the Internet, they discovered that there was no infrastructure, it was like inventing cars when there were no roads. Rad were part of the solutions, not the whole road but an interchange. But this is a field that is no longer growing, it is stable, and there are other things that are growing, such as autonomous cars, AI, cyber.

Another senior figure in the industry says: "Zohar and Yehuda's forte for many, many years was communications. In recent years, they have dropped out of the field a bit because the whole industry was less 'sexy', and invested in other things."

A source close to the late brothers adds that "people who graduate from university today don't know what Ceragon, and Radcom are. In the 1990s they were like Check Point. The field is more mature and there is no longer crazy growth, the multiples have gone down."

Rad Bynet Group comprises over 20 companies, which over the years has beenled by a philosophy in which each company operates autonomously under one strategic umbrella, guided by the Group's founders. Four of the Group's companies are traded on Nasdaq: Radware (Nasdaq: RDWR), which is managed by Roy Zisapel, Yehuda's son, and has a market cap of $679 million; Ceragon Networks (Nasdaq: CRNT) , which has a market cap of $234 million; Radcom (Nasdaq: RDCM), which has a market cap of $134 million; and Silicom (Nasdaq: SILC), whichhas a market cap of $99 million.

Two years ago, Yehuda Zisapel and his ex-wife Nava tried to issue Bynet, which they control on the Tel Aviv Stock Exchange (TASE). This is a 50-year-old company that provides solutions and integration services for communication and information technologies (ICT). The estimates were then that the company was aiming for a valuation of about NIS 1 billion, before money, to raise NIS 200-300 million. However, after several months the offering was shelved, as far as is known because the market believed the valuation was too high.

The Zisapels would usually hold a relatively small portion of the shares. In public companies, this is a 5%-20% stake. Apart from Silicon, in which Zohar sold his shares in recent years, they were parties-at-interest in the other companies. In Radware, Yehuda held a 4.6% stake in recent years, and was chairman until months before his death. In Ceragon, Zohar served as chairman until the day of his death, and held 8.3% of the shares. Zohar owned 18.1% of Radcom's shares, today, his partner Heli Bennun serves as active chairman and Zohar's shares are currently being transferred to his children Michael and Klil.

A large number of the companies are based in Ramat Hahayal in Tel Aviv, in offices owned by the family. According to Rad Bynet's website, the Group's real estate arm owns 13 buildings in Israel and northern New Jersey in the US. In a 2019 presentation, the Group owned space of more than 300,000 square meters including in the Or and Ziv Towers and Beit Immanuel in Ramat Hahayal.

Incubator for startups: "A model that not everybody liked"

The senior figure in the industry talks about an unusual business model. The brothers formed a sort of umbrella over the startups that operated beneath them. "They had a model that some didn't like, a sort of incubator for startups. With little investment and a lot of technical and strategic help for their companies. They kept a lot of receipts, and those who know them remember them well. They were not easy, but they were always fair, with exceptional and positive values."

Silicom founder and chairman Avi Eizenman says he knew Zohar from the army, when as a young engineer he joined the unit in which Zohar served as an electronics engineer, and worked with him for years, even after their discharge, when they remained consultants to the unit. "When I was discharged, I thought it would be a good idea to start a company. We didn't know the word startup in 1986," he recalls. "Zohar was the only one I knew who was somehow related to founding companies, and in the most natural way I approached him and asked if the idea was interesting, and he said yes. The money came from Zohar and Yehuda, and later they both served as directors at Silicom.

"I learned to appreciate Zohar very much. He had phenomenal technical knowledge, a very original way of thinking, and the ability to focus on details, on the one hand, and the overall picture on the other."

He adds that Silicom was always a 'rare bird' in the Rad Group. It does not bear the Group name "Rad", and has never been based in Rad Bynet's Ramat Hahayal headquarters but in the early years there was great value in being part of the Group, especially when contacting large potential customers who knew the Group, but not Silicom.

Eizenman adds that what impressed him about the brothers was their ability to get involved, but to give the CEO and entrepreneur independence. "Zohar would say 'this is what I think, that's where you should go', but never 'You should do it this way.' Even if by chance what I did didn't go the places I hoped, he wouldn't say 'I told you so'. It was a full partnership of help."

The exits: Hundreds of millions of dollars

Over the years, their traditional field of activity also yielded the brothers several exits. For example, in 2012, Radvision was acquired by Avaya for $230 million. Zohar received about $60 million for his shares in the company and Yehuda about $15 million. In the more distant past, other companies of the Group were sold, including Lannet, Radlan, Radnet and Armon, which were each sold for tens to $150 million. "They were very conservative," says the senior figure. "It was always said about them that they don't sell easily, because they don't give up their baby, nor do they buy easily."

Zohar Zisapel, as an angel (private investor) also had a number of impressive exits outside the Rad Bynet group, most notably cybersecurity company Adallom which was sold in 2015 to Microsoft for $320 million, and Argos which developed cybersecurity for smart cars and was sold in 2017 for $430 million.

The death of the brothers raises the question of what will happen from now on to the group of companies they founded and led. The source close to the brothers raises a concern that their death may harm the Group, although he notes that in public companies management is more independent. "In the private companies, they always preferred not to bring in venture capital funds or investors who would bother them," he says. "They were on the boards, and there are also representatives of the next generation there.

"But your children aren't you. If you are a singer, it doesn't mean your son will be a singer. Yehuda and Zohar both worked until the end, because they liked it and not because they had to. But they did not appoint a professional next generation who could take it further, and in my opinion that was a mistake. In general the field in which the companies in the group operate is not easy today and it has an advantage of scale that they do not have."

He adds that on the whole the companies are successful, but "I would have done it differently. I would have done what Eyal Waldman did when he realized that he would not compete against Nvidia (he sold Mellanox to Nvidia). Maybe I'm wrong, but I think their departure will be a blow for the long-term."

The senior figure in the industry adds that the brothers always cared about the country and the people. "It was difficult for them to fire employees. Before the bubble burst, Zohar told the employees at a company called RadGuard that everything would be fine. Soon after, the company was unable to raise money and they had to close. They sued him for it and he took it very hard."

Within an empire of dozens of companies, the most prominent trait that people with whom we talked about the Zisapels is "modesty". "Obviously, they didn't live in a one-room apartment, but they were modest, they didn't have luxury yachts and planes, even though they had a lot of money, they made a lot of money in real estate."

Eizenman says, "I don't know how they will be remembered, but I know how they deserve to be remembered. They are definitely the fathers of high-tech, or the startup industry in Israel. They understood that if you really want to create innovation, you can't expect certain people to come and do it within Rad, but to enable and motivate them to do this in a separate company, where they, Yehuda and Zohar, have less control. Today it may sound trivial, but this was not the thinking 30-35 years ago, and they deserve a lot of credit. They also did a lot of things voluntarily and philanthropically things that didn't always get, or maybe they didn't want, exposure. I wish there were many more people like that."

Published by Globes, Israel business news - - on April 24, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.

Yehuda Zisapel and Zohar Zisapel credit: Cadya Levy and Eyal Izhar
Yehuda Zisapel and Zohar Zisapel credit: Cadya Levy and Eyal Izhar
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