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Israeli technology companies too small for New York are increasingly opting to sell shares in London, sometimes as a springboard to Nasdaq, raising the profile of the UK exchange.
Since the beginning of 2005, 14 Israeli technology companies have joined London's Alternative Investment Market, compared with eight on the Nasdaq Stock Market in the US. In 2004, four Israeli companies had initial public offerings on AIM while three went to Nasdaq, according to figures provided by the exchanges.
"If you have a company that is fast-growing with nice revenue of $50 million and a nice net profit of $5m., it is too small for Nasdaq but can raise money on AIM," Amir Raveh of MG Equity Partners, a British investment company, said in a telephone interview.
Israeli technology companies first began trading on Nasdaq 26 years ago. Today 71 Israeli companies, including Check Point Software Technologies Ltd., the world's biggest maker of Internet firewalls, trade on the New York market, making up Nasdaq's largest contingent of non-US stocks.
The 2002 Sarbanes-Oxley Act, US legislation that tightened reporting requirements for publicly traded companies, raised the costs of selling shares and meeting regulatory standards, and the bar for a Nasdaq listing.
AIM vs. Nasdaq
"AIM offers companies a platform that allows them to raise institutional money in a very cost-effective way," said Graham Dallas, AIM senior manager of international business development.
Nasdaq requirements are generally tougher than AIM's. A company must show at least $90m. in sales the year before it lists or that it will be worth at least $550m. when it goes public. The rules sometimes allow small companies such as Scopus Video Market Networks Ltd. to list. Scopus was listed in December and has a market value of $52m.
"The two markets are distinctively different," said Asaf Homossany, Nasdaq's managing director of Israel and central east Europe. "Overall, companies see the benefits of a Nasdaq listing mainly to grow their business."
In the past 18 months, the eight Israeli companies that listed on Nasdaq raised $1.6 billion while the 14 that opted for AIM raised $946m. Excluding two gaming companies, including Empire Online, which are barred by US regulations from trading on Nasdaq, $229.5m. was raised.
"Companies we have taken to London have gone mostly below the $100m. cap," said Joseph Sabet of the Tel Aviv-based Avalon Capital, a corporate finance advisory firm. "So, obviously London is serving a need in the global market that hasn't existed."
Sabet said Israeli companies such as Orpak Systems Ltd., which raised $25m. in December 2005, also brought US investors into their AIM offering. Orpak's success has led to more interest by US investment banks in London sales and such contacts can pave the way for future Nasdaq initial public offerings, he said.
"For Israeli companies the home run is Nasdaq," Sabet said. "That will always be the case."
AIM's more flexible regulatory environment doesn't require a trading record or that a minimum number of shares be sold, while it does require a company adviser. According to AIM, its annual fees are about $7,600, compared with a minimum fee of about $21,000 on Nasdaq. Admission fees for AIM are $7,600, compared with minimum $100,000 on Nasdaq.
London is closer to Israel, a five-hour flight compared with 12 hours, with a time difference of two hours versus eight with the US east coast. In the 1990s, Israeli companies overlooked London because California's Silicon Valley was the unchallenged center of the world technology industry and a US listing gave companies in Tel Aviv US-like credentials.
"Sometimes as far as the visibility, research and exposure, it will probably be better for small- to mid-cap companies to list on a smaller stock exchange," said MG Equity's Raveh. "On Nasdaq you will be a very small fish. On AIM you are regarded as a decent company with $50m. in revenue."
Nasdaq's Homossany said that AIM could serve as a "feeder" market for Nasdaq, meaning companies start trading on AIM and graduate to Nasdaq later.
Arik Alcalay, chief executive of Leadcom Integrated Solutions Ltd., which builds, integrates and services telecommunications networks worldwide, said he considered Nasdaq, AIM and the Tel Aviv Stock Exchange, before deciding on AIM.
"The Tel Aviv market wasn't performing well in terms of initial public offerings at the time," he said. "Nasdaq wanted three-digit turnover for service companies like ourselves and we weren't there. At AIM, we were warmly received."
Leadcom was two-and-a-half times oversubscribed when it went public in March 2005, selling 9 million pounds ($16.6 million) of shares. The stock has risen 56 percent and closed on July 28 at 50 pence.
Now, with sales climbing 50% annually, a Nasdaq listing is no longer outside the realm of possibility.
"It might be something we will consider," Alcalay said. (Bloomberg)