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Monday, December 30, 2013

Why IPO's and not M&A?

In an earlier post, I discussed the possibility that Israeli companies would be switching from being targets for mergers and acquisitions (M&A) to trying to do initial public offerings (IPO's) in 2014. At the time, I speculated that all of the M&A that has been done in the last 8-10 years has been motivated by impatience and by the desire to cash in quickly.

That may well be the case, but there is also a strong incentive for Israeli companies to try to maintain their independence, and that was driven home to me this evening by stories I heard about two local companies that have been bought by foreigners - one recently and one several years ago.

The Israeli corporate culture is very different from the culture in the US. In Israeli companies, employees aren't afraid to speak to their bosses as equals. They don't expect massive layoffs for efficiency or because the company was profitable last year, 'but not profitable enough.' They don't want their businesses driven by analysts' expectations and they don't want to live in constant fear that the company will downsize.

Foreigners who have come here and bought companies have often tended to take the parts they want and shut down (rather than sell - which would at least leave people with jobs) the rest. I know one Israeli company that within a month saw its entire local operation shut down, the entire company moved to the US, and all the Israeli employees (including the founder!) fired. I know another Israeli company where employees have been told that they have to work four times as hard because they will have half the employees and must produce twice the output.

Israelis don't work that way. We are a family-centered society. We like to be home with our kids in the evening. We don't work on holidays. And as long as we're earning decent salaries and our companies are profitable (even if 'not as profitable as expected') we tend to be happy.

The way to keep that culture seems to militate toward staying independent and 'going public' rather than selling out completely and placing our corporations at the mercy of purchasers from abroad who think nothing of laying off women the day after they give birth, forcing employees to take off for Christmas (not a holiday here) or freezing salaries so that a promotion just means that you work harder.

The Israeli mentality tends to be that if you want our technology but you don't want our people, you won't get our technology either.

Expect to see a lot more of that in the coming year.

JMHO (Just my humble opinion).

And PS - I do both public offerings and mergers and acquisitions.

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At 12:16 AM, Blogger Sunlight said...

What about more focus on licensing? I've talked to a bunch of people who have in mind that licensing could be an interesting way to send technology to market, without losing the chance to keep going with the next thing. Of course, it turns out that licensing doesn't pay as much $$ as you'd want at the initial phase, because the people who are pursuing the licenses are running on the razor edge at first. Then, if it takes off and hits big (few, but enticing!), maybe there is a profit sharing or royalty built into the contract, based on product profit?


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