Israeli Migration to Australia: Out of 20 Issued Companies - Half in Negative Yield
The trend of IPOs by Israeli companies in Sydney was blocked in 2020, in light of the challenges posed by COVID-19 ■ The CEO of THE IPO field at the Sydney Stock Exchange: "Successful Israeli IPOs - Companies with maturity and a developed business model"
First published: 10:47 28.02.2021
By: Jenya Volinsky
Similar to the United States and Israel, Australia also experienced a surge in initial IPOs in 2020. 113 companies were firstly IPO'ed, an increase of more than 20% compared to 2019. In December alone, 33 IPO's were offered on the Sydney Stock Exchange. Similar to the global trend, IPOs by tech companies stood out in Australia as well.
Israel is the third largest foreign market on the Australian Stock Exchange (ASX), after the United States and New Zealand. Today, 20 Israeli companies are being traded on the Sydney Stock Exchange. While in previous years there were several Israeli IPO’s in Sydney, in 2020 the migration of Israeli companies to the southern hemisphere slowed down and only one IPO- NGS (Nutritional Growth Solutions), which produces protein-based smoothies which are supposed to be of effect on children's height and weight data - completed an IPO.
“COVID-19 has slowed listings from foreign markets, such as Israel, the United States, Ireland and Singapore - underscoring the importance of a presence on the ground," said Max Cunningham, CEO of the Sydney Stock Exchange. "However, we had a record year in listing companies from New Zealand, which although counts as foreign market, has geographic proximity to Australia. We also had some IPO’s executed from begging to end through Zoom alone." Cunningham speculates that the difficulty posed by COVID-19 in meetings with stock market representatives and investors, especially if they are far away, has affected the IPOs map.
Adv. Doron Afik, whose firm accompanies companies towards listings in Australia, also believes that the difficulty of flying to the southern continent has affected the IPO market. "It is much more difficult to raise money remotely for the first time. There were quite a few companies that planned an IPO in 2020 and could accomplish that goal. However, Israeli companies already traded in Australia raised quite a bit, for example Security Matters, which made four secondary listings in the past year, including a domestic one, in the amount of AUD 10 million."
According to Advocate Dr. Eyal Shenhav, head of the high-tech department at Gross Law Firm, which has accompanied several companies in Australia, another factor in the slowdown in Israeli IPO’s in Sydney is the rise in the attractiveness of the Tel Aviv Stock Exchange, which began winking at start-ups this past year. “3-4 years ago there were no start-ups on the Tel Aviv Stock Exchange, and then the Australian Stock Exchange was very popular and became an interesting channel for Israeli start-ups that could not raise venture capital funds in areas such as agro-tech (agricultural technology) or cannabis.
"But today Israeli institutional entities have entered deeper into high-tech, with stronger research departments in the field and with partial protection against losses (as part of the government's program to encourage investment in the field, WK). There are also many more companies that have reached a critical mass of maturity and sales, resulting in more companies mature enough for an IPO in Tel Aviv than ever before. The markets in Tel Aviv, which rose in line with the US trend, are also of contribution of the new trend. Beyond that, the strengthening of the Toronto Stock Exchange, being an alternative to the Australian Stock Exchange, has also affected the decrease of IPO’s by Israeli companies," says Shenhav.
Afik points out that in addition to the boom of the Tel Aviv Stock Exchange, the Sydney Stock Exchange has slightly increased the demands from IPOs in recent years. "If in the past they were willing to accept companies without high turnover, smaller companies and less mature, today they are looking for more mature companies that can also access the Tel Aviv Stock Exchange," he says. "Even before COVID-19, at the end of 2019, there were some companies that did not pass the strainer."
Cunningham confirms that the Australian Stock Exchange has undergone a certain maturation process when it comes to technology companies. "When we started focusing on technology six or seven years ago, the average size of technology companies was AUD 100 million, including quite a few companies worth AUD 20 million. In 2019 the average value of the companies which have undergone IPOS increased to AUD 400 million." However, he said, even if there were Israeli companies that were rejected, the reasons for that were individual, and were related to the characteristics of each of the companies, and the average size of the Israeli companies IPOing on the Australian Stock Exchange ranged from AUD 20-50 million.
Split-It: Yield of more than 500%
What attracted Israeli companies to Australia in the first place was the "unique route for high-tech companies in their initial stages, which have no income. According to Afik, the high-tech route is a fully discretionary route of the stock exchange, for better or worse, and it allows companies to recognize raising funds as part of their liquid assets, i.e. without having any such assets. Another advantage was the fact that Australia is a gateway to the Asian market, and also the popularity of a pre-IPO mechanism, which allows companies to raise capital prior to the IPO - and convert it into an IPO, with a certain discount.
"This is a less common route on other stock exchanges. However, it should be built correctly so that investors who invested before the IPO do not run away from the company immediately after the IPO. For example, one Israeli company issued a 40% pre-IPO discount, in which the entrepreneurs participated as well. "The company went down immediately after the IPO, and is faltering to this day," says Afik.
In total, out of the 20 Israeli companies traded on the Australian Stock Exchange, about half of them have a positive return and half have a negative return since the IPO. Among the most notable and positive is the Fin-tech company Split-it, which was IPO’ed at the beginning of 2019 and has since yielded more than 500%. The company, which is traded at AUD 447 million, developpes a product that allows users to make online purchases while splitting payments, with no interest and costs - an option that does not exist in most countries.
Another example is Weebit Nano, which operates in the field of memory chips, which is traded at a value of AUD 288 million and reached the stock exchange for the first time in 2016, has also yielded investors almost 400% since then. Audio Pixels, one of the oldest Israelis on the Australian Stock Exchange and engaged in sound technologies for speaker production, has yielded investors more than 600% since its IPO in 2011.
On the other hand, among the less successful companies, not including companies that have been erased (three companies) or are in a prolonged trading freeze (three companies), we can mention Roots, which was founded by Dr. Sharon Dvir and Boaz Wachtel and deals with agricultural technology in December 2017. Shekel Brainweight, a company that weighs technology for sales centers IPO’ed in November 2018, yielded a negative return of 61% for investors. Mobilicom, which develops communication solutions for skimmers, yielded a negative return of 58% for investors in the May 2017 IPO.
"In very general terms, what characterized the successful Israeli companies was that they were larger and more mature when they entered the market, with a more developed business model," says Cunningham, but cautiously notes that this is not true for all: "There are companies whose performance is not good in the market, in spite of their revenues, because they did not invest in investor relations and did not take the time to talk to the Australian investors. "
Despite the threat from the alternatives, Cunningham is optimistic about the future of Israeli companies on the Australian Stock Exchange: "Currently we already have several Israeli and American companies in the pipeline, which are expected go under IPOs and we have good relations in Israel. When the fog dissipates, I will be the first person on the plane to Israel”.