Those who believe that the capital market in Israel is full of passions, intrigues, dramas and sophisticated deals are right. But those who are familiar with the laws of the market, know that even in the heat produced by the big kitchen, there are hotter corners, and one of them is the world of the underwriting companies, the gateway to the stock exchange. The work of the underwriters in a time full of issues of shares and bonds is conducted at a murderous pace, in order to ultimately present an attractive “portion” to the investor crowd.
The underwriting companies are an intermediary between the issuing companies and the investors. They are the beliefs about bringing the new companies to the stock market, and about raising funds for them. The local underwriting market is characterized, on the one hand, by intense competition between the entities operating in it for the leading of the issuances and the hefty fees associated with them, and on the other hand, by cooperation between those active in it, for the purpose of carrying out the recruitment.
One of the oldest players in the market is Reuven Abelagonthe chairman of the underwriting company Rosario Capital, who last month sold most of his holdings in the company, which he founded twenty years ago (see box) for several million shekels. Alabagon will continue to advise the company for a short period and intends to turn to new businesses.
Abelagon’s story in the capital market is unusual. Those who experienced a painful fall of their business in the past, managed in a short time to reinvent themselves, regain the trust of the market and establish a successful business in their field. He did this with the help of diligence and maintaining his good name – despite the losses that his business brought to investors in the past.
“The first thing is determination,” Abelagon says when asked about his secret to survival. “It is joined by faith in the way and the support of those around you – the family and the children, who give me strength. I also got my hands dirty, I never just sat on the executive floor. When I had to start over, I went to an office building, entered a room measuring 2 by 3 meters, with no windows And without indulgences – and I started over. I was never ashamed to work and do small things. But for that you first have to believe in yourself, your way and integrity, and then persevere.”
“The underwriting market has professionalized in recent years”
Alabagon is selling its holdings in Rosario against the background of a period of high tide in its business, following an unprecedented wave of IPOs by technology companies on the Tel Aviv Stock Exchange in 2020-2021, which led to record results in the local underwriting companies. However, heavy losses suffered by investors in many of those IPOs, recently led to a cooling of the market. I don’t think the market is dead,” Abelagon refers to this, “it is changing and it will adapt itself. We were at a time when, due to the zero interest rate, the product called ‘money’ was without a price, and there is no product without a price. In the end, it may be that the price (interest rate) of fundraising for companies will be a little higher from now on. But we are in a pendulum, until we reach a new equilibrium in terms of the price of money. Apart from that, you have to look at the issue market on two levels, of shares and of bond raisings, while the debt raising market will always continue to exist. Also, the underwriting market has become very professional and has completely changed in recent years.”
“The banks will not satisfy the needs of the construction companies”
Which issues will interest the market in the future?
“The infrastructure sector will strengthen. These are things that will succeed and come to the stock market – companies in fields such as desalination, water management technologies, and electrical infrastructure. In the world of residential construction there is simply no choice, the banking system will not be able to satisfy the needs of the industry. The construction companies will continue to raise bonds and will later have to issue shares.”
By the way of infrastructures, you recently led the issuance of the Keystone Infrastructure Fund, as part of its deal to take over Egged at a value of NIS 4.8 billion. Was the price tag on the deal too expensive?
“I think that everyone who has bought a large company in the economy, in the end it turned out that they made a good deal and in the case of Egged, I think the same will be proven.”
The recent wave of IPOs included many technology companies that brought heavy losses to investors.
“But the total amount of money raised by them was really not large. Let’s say that all these technology companies raised a billion shekels. In relation to the market as a whole, the institutional assets, it is not significant. We still do not know what the contribution of these new companies will be to the market. There are companies that are really developing and standing in the forecasts we gave, and the market doesn’t know how to price them. It’s not the fault of the companies or the underwriters, it’s life.”
When asked to name businessmen he appreciates, Abelagon replies that “I think that Nathan Hatz, chairman of Aloni Hatz, is an excellent manager and an honest, smart and humble man. Rami Nussbaum, Ashstrom’s chairman, is also an excellent person. These are hardworking people. I also greatly appreciate Eyal Ben Simon, CEO of Phoenix, and Yoram Neve, CEO of Clal Insurance.”
Natan Hatz, CEO of Aloni Hatz / Photo: Eyal Yitzhar
No hi-tech people on your list, more from traditional fields.
“In the high-tech world, it is very difficult to measure the managers. In the more traditional areas of the economy, you work hard to make a profit. With us, money does not grow on trees. In industries that are not in the high-tech world, you have to get up in the morning and go to work to make a profit, while in the high-tech world, the profits are often faster.”
A bitter experience from the failure of the Zeller-Abelgon group
In its previous, less successful chapter, Abelgon was part of the duo that led the Zeller-Abelgon group that was established in 1993. Abelgon and his partner Aharon Zeller, former senior executives of the Israel company, wanted to achieve a similar success to that of Aharon Dovarat and Itzik Shrem, ex-Klal concern founders at the time Beit Dovrat-Sharm investments.
At the time, the stock market benefited from a surge that allowed Zeller-Abelgon to use the first months of the group’s activity to raise large capital, mainly through bonds, for activities in the field of non-bank financing.
Although the group was able to generate business on an impressive scale in a short time, and became a dominant factor in the leasing market that was in its infancy, Zeller-Abelgon suffered a series of business setbacks following failed financing deals and unsuccessful investments against the background of the declines in the stock market. The company, which in the years of its activity caused investors losses of more than NIS 100 million, was required at the beginning of 2000 for an arrangement that included writing off large debts to the banks, and removed control of it from the pair of founders.
With a significant financial loss and damaged reputation, Alabagon set out on a new path, this time alone, in the underwriting market. In 2003 he founded Rosario Capital, named after the city where he grew up in Argentina. Seven years later, he received a certificate to restore the reputation, when Mizrahi Tefahot Bank purchased a fifth of the company’s shares.”
What strengths does Rosario discover today in the underwriting market?
“Professionalism. We come to the client with research and analysis. We were also able to convince the Securities and Exchange Commission that economic models should be included as part of the documents that the underwriters submit in the IPO. You come (to market an IPO) with an economic model, not with a ‘do me a favor.’ It took time, but it is a fact that in the end all our competitors imitate us and set up research departments. This is a sign that you are successful.”
How would you characterize the industry today?
“In the end, you see that all the senior managers in the underwriting companies are veterans, there are almost no newcomers. This is a people business, a tradition. Gaining a reputation and knowledge in our industry is something that takes time. Today, there is no longer the term ‘house’, meaning a large investment house behind you that is supposed to buy the issue If you fail to market it. If the deal is good, the institutions buy.”
Why are you actually selling your life’s work?
“You must not have an ego in business. If there is a buyer, then there are sellers. You can’t get me out of Rosario, but when you have an ego there is the thought that you cannot make a mistake. I have seen many people who think and do not admit and do not learn from mistakes. You are allowed to make mistakes, you are allowed to make mistakes every day – But a new mistake. Don’t make the same mistake twice. Don’t make a mistake that can put you in a ‘total loss’ situation.”
What are your plans for the future?
“I intend to develop the subject of alternative investments. I have options to join new investment funds, mainly in the fields of technology. I will not engage in underwriting. I do not need to run. I enjoy every moment. I am hungry and looking for something new and exciting.”
How will Rosario continue without the founder?
“The market has a lot of trust in Lior (Fayce, the chairman and CEO, H. S.). Rosario is a patrol. A body that is constantly moving around and generating deals. I believe that the members there will continue the way in good spirit and friendship.”
The surprising buyer of Abelagon shares: the Schmelzer family enters the world of underwriting
As part of a deal reported last month, Reuven Abelagon is selling most of his holdings in the Rosario underwriting company to a group of investors led by the company’s CEO, Lior Peis. In the first step, Abelagon is selling 37% of the shares (he will continue to hold 10% of the shares which he is expected to sell in three years).
Lior Peis, CEO of Rosario Capital / Photo: Guy Gilad
Since Rosario is a private company, the price of the transaction was not published, but the market estimates that it reflects a value of 20-30 million shekels for Rosario, which expresses the reputation accumulated in the company (the underwriting companies usually distribute the current profits accumulated in them as a dividend).
The share that is now being sold by Alabagon is being purchased, along with Pays, by several other investors, led by the Schmelzer family, which owns the Shlomo Group, which operates in the fields of automobiles, insurance and real estate, and is now also seeking a foothold in the capital market (the local underwriting market generates commissions amounting to several hundred million shekels per year). .
Another well-known investor in the group of buyers is Nadav Grinshpon, formerly the vice chairman of Africa Israel during Lev Leviev’s time, and currently the chairman of the Hatzavim hedge fund.
After the deal is completed, Rosario’s managers and the new investors will own 70% of the underwriting company’s shares, alongside Abelagon (10%) and Bank Mizrahi Tefahot (20%). In the coming year, Abelagon will continue to advise the company, and later they will part ways.
ID card Reuven Abelagon
personal: 71 years old, in a relationship. Father of 3 children and grandfather of 6 grandchildren
professional: Chairman of Rosario Capital. In the past he served as CFO of Ofer Properties and as CFO of General Insurance. He also managed H.L. Mammon of the Israel Society Group
Something else: An ardent fan of Maccabi Haifa, plays tennis, and also a golfer who participates in competitions around the world