The major insurance groups in Israel have undergone a far-reaching change in recent years, a result of the large capital accumulated in them and the volume of assets managed by them, which will swell to hundreds of billions of shekels in each of them. These have led these companies to look for sources of growth that will allow them to continue to achieve high returns for colleagues in the long-term savings products they manage, and for their own shareholders. One of the solutions that is gaining momentum is the acquisition of a substantial share of the shares of private companies, usually from the fields of financing or real estate, and their issuance on the stock exchange.
One such offering closed on Monday this week, when The Phoenix Which has become a market leader in everything related to the issuance of its holdings, “marked V” for the issuance of the urban renewal company Beit VeGag, in which it holds approximately 42% of the shares prior to the issuance.
In the IPO, which was led by Barak Capital Underwriting and Poalim IBI, Beit VeGag raised NIS 78 million, at a value of NIS 430 million after the money. For the Phoenix, this is not a significant value flood at the time of the IPO, but the company believes that this is an investment that will yield more results in the future. At the same time, the insurance company Menorah Insurers Is currently promoting the issuance of the financing company ERN, which submitted a first draft prospectus, and is expected to post a profit of approximately NIS 200 million in the issuance.
Beit Vagag operates in the real estate industry in Israel, in the field of initiation, improvement, construction and construction of residential construction projects in Israel, and marketing and sale of housing units in these projects to the general public, mainly as part of urban renewal projects, including through TMA 38, by demolition and reconstruction , As well as as part of projects in the “Construction Evacuation” track and combination transactions.
It began as a real estate investment fund, and last November merged into a private company, transferring the rights and holdings in the fund to the company’s owners.
Significant shareholders alongside the insurance company are Poalim Equity, the real investment arm of Bank Hapoalim that will hold about 7% after the IPO; The old Mivtachim pension fund, which will hold about 8%; Home and Roof Investment Fund with 8.8%; And private investors, including Globes publisher Alona Bar-On, who set up the investment fund in 2010 and will hold 1% of the shares after the IPO; and a founding partner, Itai Hoz, who will hold a similar rate.
The understandings with the Capital Market Authority and with the Securities Authority
On the face of it, Phoenix cannot hold more than 20% of Beit Vegg, as it is a real corporation, but the insurance company has reached an understanding with the Capital Market Authority, while Beit Vag has reached an agreement with the Securities Authority, so the Phoenix deviation will be considered passive. The parties have sufficient time to take care of it without harming the real estate company.
Beit VeGag stated that the issue funds will be used by the company to increase the backlog of projects, to locate investments in urban renewal projects in high demand areas and to locate and initiate large and complex projects that will combine a mix of residential, commercial and employment uses.
The company’s financial results as of the end of the second half of 2021 show that it has made a profit after years of shuffling. It ended the first half of last year with a profit of NIS 12.8 million, compared to a loss of about NIS 3 million in 2020 as a whole.
The company’s revenues in the first half of 2021 amounted to NIS 130 million, an increase of 130% compared to the same period in 2020, and according to the company’s forecast, it ended last year with revenues of NIS 278 million. The value of the inventory of buildings for sale was NIS 216 million, and the equity of a house and roof amounted to NIS 155 million.
So far, the company has completed the construction of 376 units (half of which have been sold) in 14 different projects, and these days it is already carrying out seven more projects, which are expected to generate an unrecognized gross profit of NIS 91 million. In addition, House and Roof is in the process of building 26 additional projects, 14 of which will begin this year or next year, which are expected to bring a gross profit of more than NIS 700 million.
ID card House and roof
Field of Activity: Initiation, improvement, construction and construction of residential projects, mainly as part of urban renewal projects
history: Established as an investment fund in 2010 by Alona Bar-On and Itai Hoz. In November 2021 it became a company. Notable shareholders: Phoenix 33% (after the issue), Poalim Equity 7%, Veteran Pension Fund Mivtachim 8%
data: The company’s offices are located in Ramat Gan. The company’s CEO is Ronen Akavia and the current chairman is Shlomo Zohar. Net profit in the first half of 2021 – NIS 12.8 million. The company completed construction of 376 units (about half of which were sold) in 14 different projects. Expected gross profit from construction projects in the future: about NIS 800 million
ERN aims for a value of NIS 800-900 million
Another insurance company, as mentioned, which is currently promoting an IPO of a company that it owns, is Menora Mivtachim. In the coming month, the company is expected to be involved in the issuance of the financing company ERN, which is managed by Shay Preminger. As part of the offering, Menora Mivtachim will increase its holdings from 40% to just over 50%, thus becoming the controlling owner of the company. This is at the expense of the holdings of ERN founder Roni Nathanson, who currently holds 60%.
This is a move similar to the one that Phoenix made at the non-bank credit company and cleared Gamma last year. During the gamma issue, the Phoenix increased its holding to 60%, and became its controlling shareholder, incidentally recording a capital gain of NIS 230 million.
According to market estimates, the issue will be valued at NIS 800-900 million (before cash), so this means flooding a value for Menora Mivtachim with its existing investments in the financing company, which will bring it a capital gain of NIS 200-250 million.
ERN specializes in securing a commitment to repay checks for businesses and in providing consumer loans at points of sale. The company’s reports for 2021 reveal that it recorded a net profit of NIS 34.2 million last year, a jump of 68% compared to the previous year and also compared to 2019. The company employs about 230 employees and has 15,000 points of sale.
The company’s revenues amounted to NIS 144 million, of which interest income of NIS 55 million. The volume of its transactions in all areas of activity was NIS 5.6 billion, 80% of which is from check discounting activity. The company notes that the average interest rate on the check discounting operation was 1.6%.
Shai Preminger, CEO of ERN / Photo: Ilan Shapira
Menora Mivtachim and the financing company hope that the offering will end at the upper end of expectations, thanks in part to Bank Leumi’s investment in an ERN subsidiary, “Financing in a Click”. The bank has invested NIS 85 million in the company, of which NIS 65 million will be used to purchase 20% of the shares in “Financing in a Click”, in a transaction that reflects the company’s value (after the money) of NIS 325 million. An additional NIS 20 million will be provided as an owner loan, and will constitute 20% of all owner loans in the company.
ID card ERN
Field of Activity: Commitment for repayment of checks, financing for businesses and loans for businesses and consumers
history: Was founded in 2001 by Roni Nathanson, who now owns 60% of the shares. The CEO is Shai Preminger. Menora Mivtachim Insurance Company holds 40, and as part of the offering it will acquire 10% of Nathanson and become the controlling shareholder.
data: The company currently employs 230 people and offers credit at 15,000 points of sale. Net profit in 2021 – NIS 34.2 million
Scope of transactions in all areas of activity: NIS 5.6 billion, 80% of which operates check discounting
*** Full disclosure: Alona Bar-On, publisher of Globes, is one of the founders of House and Roof and a director