Barclays Israel CEO: “30 Israeli start-ups that were in contact with Spock stopped them”

Barclays Israel CEO: “30 Israeli start-ups that were in contact with Spock stopped them”
Barclays Israel CEO: “30 Israeli start-ups that were in contact with Spock stopped them”

Dozens of technology companies that were in advanced talks to merge with Spack have withdrawn, “Ilan Paz, CEO of Barclays Israel, warns Calcalist. The content of an activity in the form of an Israeli start-up.

“I know of 20-30 start-ups that have stopped negotiations with Spacks in light of what is happening to shares issued using this method on Wall Street,” Paz said in an interview with Calcalist. Billion to a billion dollars, so this market is still open to them. Few of them think about IPO. They understand that in most cases they are not yet ready to be public and prefer to return to the private recruitment route. “

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The picture is indeed painful, and it can be said that a large part of the spock companies have become “zombie” in terms of investors. Although the Spook people tried to convince the founders and executives of the technology companies that no matter how you get into Wall Street, the main thing is that you will be there, the reality turned out to be completely different. Although the entire technology market has suffered, such as companies like RiskPayed or SimilarWeb, which are traded below the issue price, it is not on the same scale as Spacks.

Here, only one company out of 11 issued through a merger with Spock, Ironsource, is still trading at a positive return compared to the IPO. The rest show double-digit negative returns, with companies from the auto tech industry standing out, with falls of more than 50%. In the regular IPO track the ratio is reversed and companies like Monday, Sentinel One and Global Island have yielded investors dreamy returns within a few months.

Severe tradability problem

Beyond the return, however, companies issued through Spock also have a severe tradability problem, which is related, in most cases, also to the issuance structure that leaves them with very low liquidity. If in most of the tradable shares in Nasdaq the daily turnover is measured in millions of shares, then in most of the Spakim shares it is only hundreds of thousands of shares.

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Another problem with the Spock method is the lack of coverage by Buyside analysts who “market” the shares to institutional entities. In regular issues these analysts come along with the underwriters. The more reputable a bank is, the more weight its analysts have.

“Companies that have been issued in the merger have missed the whole point of covering Bayside analysts,” says Paz. “These are analysts who start lending to you almost a year before the IPO. The issue of investor relations (IR) is also often undeveloped and not built in companies that were quickly issued in Spock, they did not actually do a full road show and did not present at professional conferences. “Today they are traded at a value of less than $ 1 billion in the problem, because investors do not look at these companies at all. It is difficult to get out of this situation.”

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Ilan Paz, Director of Barclays Israel

(Photo: Yossi Zeliger)

In fact, the Wall Street establishment is “punishing” track shortcuts from the world of technology. Although the companies’ coffers are home to the cash raised in the offering, from the point of view of their shareholders from venture capital funds, this is now a decrease in the value and loss of the “unicorn” status that any young start-up can receive today. It’s also angering, because this establishment – including Paz and Barclays, who accompanied Hippo’s Spack, which experienced a major downturn, and accompanying Pagaya’s Spack, which has not yet started trading – participated in the celebration itself and cut a coupon.

But the establishment was also the one that put Brex to Spacks a few months ago, when it reduced its participation in the PIPE fundraising, the second round of funding for Spack, which takes place after it is already known who the company is going to enter the stock market skeleton. All the powerful entities on Wall Street, such as mutual fund companies and the big banks, initially bought shares in these fundraisers, but then began to examine the pricing in depth and demanded discounts. When they did not receive them, they expressed less and less enthusiasm for participating in the PIPE fundraisers, from which most of the money in the smack issues comes. “PIPE investors are serious entities, who price the companies themselves and do not necessarily rely on what the spa entrepreneurs bring them,” says Paz.

Will the money be returned to investors?

These developments are pouring cold water on the issue of spack and Paz estimates that only companies that are unable to obtain liquidity by another method will choose a route that was popular for a moment. “Soon the spook market will return to its normal size, of dozens of trades a year, because it is ultimately a niche market suitable for non-corporate companies. Companies with real activity, situations like “We will not have revenue until 2026” will no longer happen. “

And what about those stuck in the middle? One of the largest Israeli issuances, that of the e-Toro securities trading platform, which is scheduled to start trading at a value of $ 10 billion, has not yet been completed, although it was announced in March 2021. It is estimated that this is mainly due to ongoing ping pong with the US Securities and Exchange Commission (SEC) and less investors’ concerns about value, and the IPO will be completed in the coming month.

Those who are starting to get really stressed are the spook entrepreneurs, including some Israelis, who have not yet found a “match.” Given the reluctance of high-tech companies to use the method, it is likely that we will soon see either IPOs that are completely disconnected from reality, or the possibility that no entrepreneur Spock wants to think about – returning the money to investors. According to the rules of the Spack, anyone who does not find a company to merge with within a period of up to two years must return the money. Today, there are more than $ 100 billion in about 400 spas that have not yet found a merger company. “Today, the company should have a very good reason to choose the issue route for the IPO, most of the time it will be out of an existential need for liquidity,” Paz concludes.

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