The companies that changed plans in the wake of the downturn

by time news

If in the past week the red color has taken over the trading screens on the world stock exchanges and in Tel Aviv, then with the opening of the current trading week the declines intensified, at rates that reached about 3% in the leading indices (TA-35 and TA-90), after the weekend Particularly negative in US trade.

The declines in the opening of the current trading week continue as a rather negative trading direction from last week, which amounted to a decrease of about 2.5% (TA-35), and they complete a decrease of about 5% from the peak level reached by the local stock exchange only a week and a half ago. 2,071 points.These declines also move the flagship index to a negative return of about 1% from the beginning of the current year.

All this against the background of growing fears of adverse change in market conditions, mainly related to interest rate hikes expected to be made by central banks, led by the US Fed, due to rising inflation, along with the expected reduction in central bank money flow to markets.

Looking back at the performance of the local stock market, the sharp price declines are recorded, as mentioned, shortly after the TA-35 index reached a record high, and after summing up 2021 as a particularly successful year – with a nice increase of about 33% in value.

Securitization and PeopleBiz: Value differences between issuers and institutional investors

One immediate derivative of the current deterioration in market conditions in the local trading arena is reflected in the issue market. Within a few days, it was announced that two IPOs – of the metal company Iskur and of the crowdfunding platform PeopleBiz, had been in relatively advanced stages. The sharp price declines increase the question marks regarding quite a few more issues that are on the table.

Iskor, which imports, processes and distributes metals and steels, is estimated to have raised several hundred million shekels at a company value of about 1.5 billion shekels – four times the value at which control of the company was acquired by Keren Kedma, just three years ago.

Iskor has been benefiting from a tens of percent rise in world metal prices for some time now – which is pushing its financial results forward, and the company has sought to take advantage of the improvement in the results to carry out the issue at the desired value.

PeopleBiz, which operates an Internet platform to raise financing (mainly capital and debt) for various ventures, especially in the field of technology, was one of those companies that sought to reach the stock market when their financial situation was challenging, and yet aimed for a company value of about NIS 250 million, before raising about 50 million A shekel she wanted to carry out.

The draft prospectus published by PeopleBiz prior to the IPO revealed, among other things, that its financial statements are accompanied by a “live business” note and a host of other auditors ‘comments, including drawing investors’ attention to its significant losses, capital and working capital deficit and negative cash flow.

On the other hand, PeopleBiz, founded in 2015 by the pair of young entrepreneurs (31 years old) Or Ben Nun and Oren Hamburger (no connection to the Hamburger family from Harel) presented relatively shrunken revenues, which stood at about NIS 4 million in the first half of 2021.

The cancellation of the capital raising moves of Iskur and PeopleBiz is done as far as is known in view of the value differences between the issuers and the institutional ones. Iskor announced that “according to the controlling shareholders’ decision, the company will, for the time being, withdraw the offering prospectus. The company’s owners do not intend to compromise on value, given market conditions, and in light of the company’s consistent growth and growth.”

In this way, Iskor and PeopleBiz join several other large issues that have been canceled in recent months due to disagreements regarding the issue price, including Aviv Aviv Real Estate and Shlomo Insurance.

At the present time, selectivity, it seems, is the name of the new game in the IPO market in Tel Aviv, and the selectivity of the institutions is growing. There is a double-digit number of issues of new companies that have already published draft prospectuses on the way to raising initial capital, but it seems that a large part of them, and according to underwriters in the underwriting market, most of them, will probably not materialize.

The offerings are perfect only after an aggressive price cut

The initial public offering market in Tel Aviv experienced a renaissance last year, concluding one of its peak years on the local stock exchange ever, but has already cooled down over the past year. Starting at 15% and reaching up to about 50% of the original price at which the company planned to join the trade.

Given market conditions, what seems to have fallen out of favor almost entirely are the offerings of young technology companies, which were at the heart of the initial capital raising (IPO) wave that swept Tel Aviv last year, with close to 100 new equity offerings – about two-thirds technology, cleantech and biomed.

Those same companies, from a variety of fields of activity, which usually boast a unique technological idea, joined the trading arena despite “live business” comments from accountants (for some), with substantial losses and no significant revenue (mostly). Although they passed the market test, mainly due to the timing of the IPO, as of today the investment in them has yielded significant negative returns of tens of percent to investors.

As we noted in the underwriting market, “You can see more small technology companies that manage to issue, especially small companies that raise the minimum possible amounts, around NIS 20 million. 2021 “.

An example of the fact that despite the change in the market situation so far the issuance rates for technology companies have not been hermetically sealed provided by UserWay, a company that specializes in digital accessibility and website accessibility. In recent days, the company has completed raising NIS 30 million, at a company value of NIS 120 million (before cash), and at the beginning of the week trading in it was not affected by the general direction, and it recorded sharp price increases in a relatively limited trading volume.

“Real issues can still materialize”

Regarding the state of the issuance market, the underwriting market said that “at this stage it is worth waiting a few days to see which direction the market is heading, and if the sharp declines continue or calm down. Evidence states that only in recent days has the home-protected rating company completed its IPO as planned, at the price it demanded – and even a little above it.

According to the underwriters, “Ultimately the decision whether to participate in an offering is related to the value of the issued company. The market no longer agrees to pay inflated values, as was easier to achieve a year ago, but if good companies come to the market with proper value, the market will always take them. There is demand, even in less good times. “

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