Mobileye Leads IPO Rush as Deals Bypass Rockets: Israel Markets

Wednesday, 30 Jul 2014 03:10 PM

 

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Israel’s military showdown in the Gaza Strip is failing to deter its companies from trying to raise capital. Five are coming to market with U.S. initial public offerings in what’s poised to be a record week for new Israeli equity sales.

Mobileye NV is seeking to raise $638 million in what will be the biggest U.S. IPO ever by an Israeli company, valuing the Jerusalem-based maker of technology that helps stop car accidents at $4.9 billion. Four biotechnology companies, led by Vascular Biogenics Ltd., are raising a total of $223 million this week, according to data compiled by Bloomberg.

The Israeli firms join 19 others rushing to seize on investor appetite this week with U.S. equities in their sixth year of a bull market and the Nasdaq Composite Index trading near the highest level since 2000. Federal Reserve Chair Janet Yellen’s comment that biotech valuations may be “stretched” is pushing companies to tap the market more than concern the conflict in Gaza may escalate, said Jeff Sica, the president of Morristown, New Jersey-based Sica Wealth Management LLC.

“It has more to do with the fact that the market is in bubble territory and either they go out now or they risk not” going, Sica, who oversees $1 billion in assets, said by phone on July 28. “I don’t think they’ll need to have a discount due to geopolitics.”

International pressure is mounting on Israel to end its three-week offensive in the Hamas-controlled Gaza Strip, the third major military confrontation in the area in less than six years. The conflict has claimed the lives of around 1,300 Palestinians and 55 Israelis.

Limited Impact

Israel’s financial markets have shrugged off the Gaza crisis, with the shekel just 0.1 percent weaker and the benchmark TA-25 index advancing about 1.4 percent since fighting intensified on July 8. The Bloomberg Israel-US Index of U.S.-listed Israeli companies, which gained about one percent in the period, rose 1.4 percent to 120.01 at 2:34 p.m. in New York. The shekel was little changed at 3.4287 per dollar.

Just three other Israeli companies have listed on U.S. exchanges this year, raising a total of $219 million. All were biotech companies that have seen their shares tumble since going public. The Nasdaq Biotech Index is up 12 percent this year, after rebounding from an 11 percent plunge in March.

Mapi Pharma Ltd., which makes treatments for multiple sclerosis, raised $18 million yesterday. Vascular Biogenics, which develops cancer drugs, and MacroCure Ltd., a developer of wound therapy, plan to sell shares today, according to data compiled by Bloomberg. Mobileye and Bio Blast Pharma Ltd., which makes drugs for rare genetic diseases, are set to offer stock tomorrow, the data show.

‘High Risk’

“Pricing is competitive, it’s higher than two years ago, but it’s probably not as good as earlier in the year in biotech,” Josef Schuster, the founder of IPOX Schuster LLC in Chicago, said by phone July 25. “These are high risk, no revenues, and usually there’s much more pricing pressure.”

Israel’s central bank unexpectedly cut the benchmark interest rate to a five-year low of 50 basis points on July 28, warning that “security events” of “similar magnitude” over the past decade typically cost Israel’s economy about 0.5 percent of gross domestic product.

The conflict in Gaza should shave about 25 basis points off growth this year as canceled flights drag on tourism and government spending increases, Ori Greenfeld, the chief economist at Psagot Investment House Ltd., wrote in an e-mailed report July 28.

Slower Growth

“The decline in tourist inflow usually continues for at least another six months after the military operation is over, so we can say that their year is done,” Greenfeld, who lowered his 2014 growth forecast to as low as 2.5 percent, wrote in an e-mail yesterday. “Since Tel Aviv is attacked by missiles, people aren’t going out as much, so personal consumption is also declining.”

Larger companies with proven sales should have an easier time obtaining higher valuations than the biotech firms, Schuster said.

Mobileye boosted its share price range yesterday to between $21 and $23 from $17-$19 previously, according to a regulatory filing. The company declined to comment on its offering in an e-mail, citing regulatory restrictions.

Founded by Hebrew University professor Amnon Shashua and Ziv Aviram in 1999, Mobileye makes a chip and a system that alert drivers to pedestrians and unintended lane departures. It counts General Motors Co. and Bayerische Motoren Werke AG among its customers, and says there are already 3.3 million cars on the road using its technology. The company turned a profit of $19.9 million last year on revenue of $81 million.

Valuation Discount

Even at the low end of the range, Mobileye would surpass the IPO of Partner Communications Ltd., Israel’s second-largest mobile provider, which raised $525 million in October 1999.

While Israeli companies generally tend to capture valuations that are discounted to their Silicon Valley peers, their ability to raise money won’t be crimped by the Gaza conflict, said Jon Medved, CEO of Jerusalem-based OurCrowd Ltd., a crowd-funding site.

“The companies go on, continue to raise money, get their business done,” Medved said by phone July 28. “All things considered, it’s a great time to be active in Israeli tech.”

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