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There Are Signs of a Revival in Israeli IPOs

There Are Signs of a Revival in Israeli IPOs

(Bloomberg) -- The lull in Israeli initial public offerings could be ending: There are almost as many potential IPOs in the works in the first quarter of this year as for all of 2018 -- even if the companies aren’t all targeting their home market.

Gett Inc., the Israeli-based ride-hailing service, this month announced in a letter to employees plans to go public. The Volkswagen AG-backed firm may soon be competing with Uber Technologies Inc. and Lyft Inc. not just for riders, but for investors’ cash too.

And Gett is far from the only Israeli company contemplating an IPO: Fiverr International Ltd., which runs a marketplace for freelance services, is said to be planning a New York share sale. The same goes for cybersecurity specialist Tufin Software Technologies Ltd. Online payment startup Payoneer Inc. has reportedly hired bankers to explore its options for a listing, while another payments company Credorax Inc. is also in the mix.

The volume of possible IPOs moving along the pipeline resembles a “pig in a python” for Gilad Shany, a managing partner and co-founder of ION Crossover Partners, which invests in late-stage startups close to going public, including Fiverr. As many as 40 Israeli companies are in a position to consider IPOs soon, he said.

After 17 IPOs by Israeli tech companies in 2014, the numbers dropped to just six in 2016 and eight last year. But there are signs of an end to the drought. Here is a list of Israeli companies to have held IPOs in 2019, announced plans to sell shares, or that are said to be preparing listings:

There Are Signs of a Revival in Israeli IPOs

“There’s a wave of quite a few companies that are getting ready for IPOs,” said Aviad Ariel, a general partner at Vertex Ventures, an Israeli firm with over $900 million assets under management. “Assuming that the macro conditions remain stable, we should be able to see a nice number of companies going public.”

The buildup of listing candidates can be partly explained by an evolution in the ambitions of Israeli startups and the financing options at their disposal. While in the past, entrepreneurs might typically set up a company around a technology, build it out a little and then sell, founders are increasingly in for the long run. The case of Nvidia Corp.’s $6.9 billion swoop for Israeli-American chipmaker Mellanox Technologies Ltd. has strengthened the argument for patience.

There Are Signs of a Revival in Israeli IPOs

“About 10 years ago, Israel went through a big change,” Micha Kaufman, chief executive officer of Fiverr, said in an interview. Israeli venture capitalists at that time “were short sighted and focused on quick outcomes, pushing a lot of entrepreneurs and startups to sell too fast,” he said.

That all changed with the entrance of more foreign investors with deeper pockets and a willingness to hold on to a company for longer, Kaufman said, declining to elaborate on his company’s plans.

Helping this along are valuation multiples for technology stocks that are at or near all-time highs, along with a scarcity of new offerings, said Cully Davis, San Francisco-based vice chairman for equity capital markets and head of West Coast Technology at Jefferies Financial Group Inc., which is working on Tufin’s IPO. The bank sees a market opportunity in Israel, with more startups getting serious about pursuing public offerings.

Economic Boost

“If IPOs are coming back, it’s good news in the sense that these companies accrue benefit to the entire Israeli economy,” said Eugene Kandel, CEO of Start-Up Nation Central. “What we like to have are alternative ways of funding in the industry so we can grow mature companies in Israel. Mature companies generate much more value to the entire economy.”

And while Uber and Lyft will sell shares in their home market of the U.S., Gett is investigating the option of listing either abroad or in Tel Aviv, where 30 technology stocks are traded, compared with 32 Israeli companies on two exchanges in the U.S.

The TA-35, the main gauge for Israel’s market, is up 5.4 percent this year, trailing gains of 16 percent for the Nasdaq 100.

Israeli firms that pursue IPOs abroad do so for the “visibility, coverage, valuation and liquidity” they gain, said Steven Schoenfeld, founder and chief investment officer of BlueStar Indexes. Venture capitalists “in both Israel and globally encourage that,” he said.

Stock markets are also looking increasingly attractive to company founders who believe the availability of private funding may be reaching its peak, said Adam Fisher, a partner at Bessemer Venture Partners, also an investor in Fiverr.

There Are Signs of a Revival in Israeli IPOs

“Israel has a record-high number of IPO-able companies,” said Fisher. “The market for endless private capital at higher and higher valuations is reaching a point where it is probably not sustainable. And they are saying ‘well, if you don’t do it now, the market may close.’”

--With assistance from Filipe Pacheco and Yaacov Benmeleh.

To contact the reporters on this story: Ivan Levingston in New York at ilevingston@bloomberg.net;Gwen Ackerman in Jerusalem at gackerman@bloomberg.net

To contact the editors responsible for this story: Riad Hamade at rhamade@bloomberg.net, John Viljoen, Paul Jarvis

©2019 Bloomberg L.P.