Bank of America Merrill Lynch Equity Research Group Managing Director Tal Liani examines some of Israel’s tech companies, especially recent specialist acquisition company mergers (SPACs) – and despairs of anything to do with them. investor relations approach.
Liani, who specializes in cybersecurity, is a Wall Street investment banking veteran. If you’re the head of a company that is considering going public on Wall Street – certainly if you are considering merging with a PSPC – you need to pay close attention to what it says.
SAVS are blank check companies, without their own activity, which collect funds from the public in order to merge with an existing company within a predetermined period, or are required to reimburse the payment to its investors. Since the start of the year, more than 10 Israeli tech companies have merged with PSPCs, most of them worth over $ 1 billion. To date, for the vast majority of these companies, their investors have recorded post-merger losses, in some cases half of their investment and even more.
“The worst thing that can happen to a stock, no matter if it enters the market through a SPAC or an IPO, is that it no longer matters to investors. It’s the kiss of death, and it’s very difficult to rekindle interest in the company afterwards, Liani warns. The solution is to cultivate relationships with investors, and to do it the right way. .
Does this really explain why Israeli companies that recently entered into PSPC mergers lost significant value after the merger?
âFirst of all, entering the market through a PSPC puts companies in a situation where they have ‘a chip on their shoulders’ – they have to prove themselves. Investors think that because a company has gone through a SPAC process, it had to fail publicly through an IPO.
âThere is also a certain structural problem: PSPC entrepreneurs raise funds, and then they have 18 months to find an investment or return the money to their investors. Suppose 12 months have already passed. There is a risk that the investment will be less than ideal, and you will have to pay back the money.
âAnother problem is that there are promoters outside the company, who get a percentage on the transaction. The question is, are they really making the right investments, and for the right reasons? Are they motivated by their commissions or because it really is a suitable business? These are the landmines to be wary of. “
Liani says that after a merger, there is a period of 6 to 12 months during which the company that merged with a PSPC must prove itself. âInitially, investors are worried. There are still concerns about whether the company decided to merge PSPC because it received a good review, or because it was not good enough to be made public in some other way. You have to prove to the investor that you are worthy and good, âLiani says.
Tal Liani’s advice for tech companies on their way to Wall Street
American businesses are wonderfully prepared
The shortcomings in investor relations are not unique to PSPC merger companies, but, according to Liani, entering the public market in this way only increases the company’s burden of proof. âWhen an American company goes public – and I cover the cybersecurity industry and I know the companies – you usually see that they are wonderfully prepared.
âAmerican companies understand that in the beginning, they have to support trading in stocks. The days of analysts who present all the numbers they need to know. , one of my problems is to make them understand that the investor is important.
âIn Silicon Valley, the importance of the investor is not an issue. You don’t run the business for your board member – it’s for your investor. They are the ones who can increase the share and make it negotiable, and that’s good for the company: the stock is basically a currency, and with a strong currency, a company can make acquisitions, and recruit new employees. “
What does it mean that Israeli companies do not understand the importance of investors?
âA lot of times, especially when it comes to a company merged with PSPC, they come into the market without preparation, without IR. I have come across instances where a company did not report earnings per share, only total earnings. they tell me they still don’t know how many shares they own, that’s why they don’t report earnings per share. And then I say, “So what am I supposed to do – guess”? Or they can provide quarterly and fourth quarter financials first, and say âQ2 and Q3 to be provided laterâ.
âCompanies only provide half of the information
Liani adds that “The problem with these companies is not their readiness for the public market in terms of operations or the quality of their products. They are generally good companies with a niche market that they serve well. some are excellent and well run. The problem is they don’t understand that there is another aspect: that if they provide accurate financial data, they can talk to investors about the size of the market, from the market share. market, opportunities, and prove it in numbers.
âAll of these things are used to support sharing. The numbers should be organized, with quarterly, not just annual, reports and a cash flow statement. Often times, they only provide half the information because they only provide what is needed for PSPC, and nothing more. But these additional steps need to be taken – providing all the information, for example, sales data by divisions, geographic markets, etc. This additional information allows investors to understand how the business is developing. “
In contrast, he says, “there are seasoned companies that have been preparing for the public market for two years and have gone through the seven gates of hell, talking to investors, analysts and investors, and learning first hand what to do. “
This means that shortening the IPO process through a PSPC merger can turn an advantage into a disadvantage.
âThere are several stages in the life of a business. First, the start-up stage, then the big start-up, then the growth stage, and then comes the stage where the business is preparing. for the public market and acquires experience.
âWhen it comes to PSPC, because companies skip the investor readiness phase, that lack of knowledge is going to bounce back on them. Maybe not today, when the market is crazy and valuations are good, but the problem is what happens when the market corrects itself. I’m an old man, I’ve seen market corrections, and I know enough to say a correction is coming. they are the ones who are going to suffer because they will not have strong support from investors. That is why we have to work on it while all is well. “
An example of a company that has gone through all of the milestones Liani mentioned is cybersecurity firm SentinelOne, which launched its IPO several months ago. âIt’s an extremely American company,â says Liani. “The CEO is Israeli, but the way they communicate with Wall Street is completely American.”
Accents are also important
Liani also makes a practical recommendation: âFrom an Israeli point of view, if I were the manager of an Israeli company, I would make sure my IR manager spoke English with an American accent. Israeli entrepreneurs have all the local manners, and often the VP Finance and IR are Israeli too. It is not the right thing to do. It’s done well at Check Point, for example, where the IR manager is an American who lives in the United States.
âYou have to talk to investors in their language, and they are mostly American. Allot, CyberArk and Amdocs also manage their investor relations very well in English. But often companies fail and work with those they feel comfortable with. right to do. Investors want someone to speak to them to speak their language, with their slang, and in their time zone. “
Language aside, the other challenges you mentioned regarding after-sales service are not necessarily unique to Israeli companies. Are US companies merging with PSPCs also weak in their relations with investors?
âIt’s not an Israeli problem, it’s a global problem. My bank colleagues who are investigating these companies will say to me, ‘A big company, but the finances are not ready.’ From a legal-regulatory standpoint, they have it all – annual reports, last quarter reports, but they haven’t taken that final step of providing more information to their investors. Have to prove yourself and you can. do it with the numbers.
âSo for the most part, when an American company merges with a PSPC, the story is similar. if you don’t bring in someone with Wall Street tech background. Very often they have to make mistakes to learn from them. “
Throughout the PSPC merger process, nobody said these things to the company? Does someone with IR experience tell them that they need a CFO or IR manager with market experience? Nobody tells them they should provide more detailed financial reports?
âProbably not. I don’t know what’s going on behind the scenes. Venture capital funds certainly know the importance, because they’ve been active in the international market for years, but these funds aren’t always involved. , either there is no one has this knowledge, or there is someone who thinks it is not important enough. “
Posted by Globes, Israel business news – en.globes.co.il – on October 17, 2021
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