London is by far the most popular city in Europe for vacationing Israelis. They enjoy the sites - Buckingham Palace, #10 Downing Street, the Tower of London, the theater, the shops and the vastness of a city which has the chic and class of a modern metropolis. Yet few Israelis travel to the "City", London's wholesale financial center. Ask the average Israeli where Wall Street is. He is likely to answer that he has visited there. You are likely to draw blank stares when asking about Bank or Threadneedle Streets.
In an unprecedented event the United Kingdom's Department of Trade and Industry, partnering with the Israel Britain Business Council and in association with the Israel British Chamber of Commerce brought a group of "some of the best financial specialists from the world's leading financial center" who participated in Tel-Aviv in first ever financial services seminar entitled The Advantages of London. The visitors were headed by a highly personable Lord Levene the Lord Mayor of the City of London. For Lord Levene, highly experienced in business, finance and government, this was the third visit to Israel but first as a promoter for London, the financial center. "I would sell you the advantages of London as a provider of financial services. 18% of all global investing or $2.8 trillion turnover is done in London." The Lord Mayor further stated that "I see Israel as part of Europe rather than as an emerging country".
Mr. Francis Cornish, the UK Ambassador to Israel pointed to the very recent ground-breaking agreement signed between Israel and UK with the establishment of BriTech fund, with $25 million, to be matched by the private sector, for helping to finance the activities of promising UK/Israel high-tech projects.
Prof. Ben-Zion Zilberfarb, Director General, Ministry of Finance expressed the Ministry's satisfaction with Britech and added that the Ministry has been in contact with the Tel-Aviv Stock Exchange and Israel's Securities Authority to facilitate dual listings. "We see dual listings as an important tool in participating in the globalization process," stated Prof. Zilberfarb. Only a handful of Israeli companies have dual listings, on the Tel-Aviv Stock Exchange and on NASDAQ. The Israeli companies listed on the AIM market and the London Stock Exchange are all single listings.
That Israeli companies, especially the high-technology firms, have preferred to go to Wall Street for their financial needs and for the registering of their shares for trading, was stressed by various speakers. For almost every 20 Israeli companies whose shares are traded on NASDAQ, the New York Stock Exchange or AMEX, only one company is traded on London's AIM - Alternative Investment Market. However, if Theresa Wallis, AIM's Chief Operating Officer has her way this ratio will change in the near future. "Earlier in the year we initiated the Information Technology Index which we publish daily. The index has drawn attention to the high-tech companies and their trading turnovers have gone up noticeably. The IT Index has risen 30% this year which is more than general index of shares. Of the 311 companies traded on AIM 28 are foreign companies. One of the advantages of an AIM listing it that it allows young companies to come to the market. A record of three years of sales and 25% of the shares to be held in public hands, and consolidated accounts in keeping with IAS, UK and GAP principles of accounting are the requirements for a listing. However, AIM is becoming an address for Israeli companies, as Israel with six listings is second only to Ireland among non-UK listers, stressed the London Stock Exchange executive. According to a well placed London source, AIM's growth has slowed in 1998 following the cancellation of favorable to investors tax concessions. The removal of the tax "sweetener" lowered the attraction for investors for trading AIM stocks.
An indication of a commitment of the British financial community to get a foothold in Israel's "Silicone Wadi" were executives who were previously active in the Middle East but for a variety of reasons had omitted Israel from their agenda. For Peter W. Swarbreck, Director for Middle East and Africa for Merrill Lynch Mercury Asset Management, a veteran of 10 years of activity in this part of the world, it was a first visit to Israel. He told IHTIR that the group has already invested some $50 million in Israel but his trip was to assess the market for investment management services to Israeli pension funds. A few years ago pension funds in Israel were not allowed to invest outside of this country but new legislature, part of the liberalization program in Israel, has relaxed restrictions on investment by pension funds. As a result a defined percentage of total assets may now be invested outside of Israel.
Attendees of the Seminar were mostly members of Israel's service professions including attorneys, accountants and businessmen but also apparent was the absence of Israeli entrepreneurs or corporate chief financial officers who are interested in financial services.
The visit to Israel by the high-profile British group is indicative that the British have finally noticed the business potential of Israel's investible sectors, including the high-tech group of companies.
The seminar, however, was devoid of the "spice and pepper and excitement" generated at similar events organized by Wall Street professionals. The organizers have personally expressed the hope and expectation that it would be a springboard to broadened interaction for the City of London and Israel. As a next stage the organizers might consider inviting Israeli entrepreneurs who are slated to be the movers and shakers of the next generation of high-tech companies. These will be the future clients, for whom raising capital in England, with a subsequent listing on the London Stock Exchange or the AIM Market may prove to be an attractive option.
Lord Levene's remarks that "London offers investors access to the largest and most liquid pool of international investment capital in the world," and "It operates subject to high standards of regulation, tailored for international issuers and it enjoys very competitive costs," carried for us the authentic ring of commitment to the issue.
Bloom and Boom Years to Continue into the Next Century
1997 was a banner year as venture capital investors cashed in on massive profits as portfolio companies valuations ballooned as a result of winning Initial Public Offerings. ESC Medical and Galileo provided fireworks. Individual investors who bought it at new issue price also were big winners. It was a great year for industrial research and development as Intel unveiled its Pentium Processor with MMX technology, developed at Intel's Israeli research center. High-tech exports capped a 40% growth in 10 years and passed $16 billion. Few dared to suggest that "the boom and bloom" would continue into 1998. Yet the year which just ended was full of surprises. Buyouts provided the high-tension excitement. The "deal of the year" was the purchase of the Israel-based company Mirabilis Ltd. that makes the widely used ICQ Internet chat service for $287 million. The purchase price could grow another $120 million depending on Mirabilis' operations over the next three years. Mirabilis developed ICQ technology, which informs Internet users when family, friends and business colleagues are on-line and enables them to exchange messages in real-time. More than 12 million people were using the technology. At the recent count the number of users had risen to 20 million. The three founders of Mirabilis were barely out of their teens and they proved that you can make it big from Israel's "Silicone Wadi". Shortly afterwards, MEMCO Software, a provider of information security software, proved that they had reached "star status" when they agreed to a merger with Platinum Technology, a major provider of IT infrastructure management software. The combined offerings of both companies is expected to provide advanced solutions for protecting enterprise networks, databases, and systems across multiple platforms. The transactions value was in excess of $500 million.
This past year the Internet became a global buzzword. For three years it had been a story but in 1998 it ceased to be a story and it became the one and only story. The Web turned into a prime-time vehicle for 100 million individuals worldwide. On one day in October when shares in America turned sharply lower, 18 million individuals logged on the NADASQ site which carries the Israel High-Tech & Investment Report as an on-line resource. The systems came under strain but did not fail.
The exponential growth of e-commerce was felt and sales of goods and services over the Internet would top $7.1 billion for 1998, more than double the previous year.
As the year ended Nomura International invested in Versaware Technologies, an American company with a wholly owned Jerusalem subsidiary specializing in electronic publications for the Internet. The two year old startup was accorded a valuation in excess of $70 million. Virtual Communities Inc., also only two years old, is the creator of the popular Virtual Jerusalem website and has just launched the Virtual Holy Land website and though very young, is already being courted by American investors. These "portals" combine e-mail and search capabilities with a variety of news and entertainment services. At least a million dollars is invested in each site so as to make them the preferred points of user entry into the Internet.
On Wall Street, any new issue with a "Net" in its name is drawing feverish enthusiasm. Though prices are soaring beyond the borders of common sense and belief, the best of these will not only survive but return handsome profits to investors. The benchmark for investment is the promise of instant wealth which has replaced the time honored measure of price/earnings ratios.
In our May 1998 issue we predicted "Yet, we are firm in our conviction that economic logic will assert itself and that new financial realities, including a new rate of exchange will emerge from the current muddled atmosphere." In October Israel proved its fundamental economic strength during the hectic days of foreign currency in the wake of the economic problems in Asia and South America. In three days October 6-8, in hectic foreign currency trading on the international' foreign exchange markets the dollar plunged against the Japanese yen down to JY 111. It was down by a quarter since its peak of above JY 140 in August. In recent years Israel moved away from controls over foreign currency holdings and its capital markets were wide open to be buffeted by the selling of securities by foreign investors on the Tel-Aviv Stock Exchange. The subsequent repurchase of dollars, followed by speculative transactions involving the New Israeli Shekel (NIS), and to the unwinding of cheap foreign loans taken out by its own business community were powerful tests of Israel's ability to maintain stability.
However, neither was there a collapse of the exchange market nor was there any intervention by the Bank of Israel, the country's Central Bank.. A major test had been passed with some but not major damage.
Kesselman & Kesselman, a leading Israeli accounting firm reported the good news, that: "a new record level of venture capital investments in 72 Israeli companies totaling $159 million, was achieved during the third quarter of 1998."
In a recent market survey carried out by the highly respected international research organization --- International Data Corporation valued e-commerce on the Internet market in Israel at $300 million for 1998. IDC's estimates that the local Internet market is likely to reach $1 billion by the year 2002.
Will the world as we know it grind to a halt on January 1, 2000 as the Y2K bug makes simple tasks on computers impossible? The Year 2000 computer problem is a reality and among others Israel's Crystal Technologies is providing the answer for major corporate clients in the USA.. Actually, the world has known about Y2K ever since an independent consultant uncovered the code glitch in 1984. Just what's going to happen remains a matter of debate. Some trouble is surely ahead -- but not calamity. Businesses and governments are hurrying to make up for lost time and make their computer systems Y2K-compliant. It's a race against time and the clock is ticking.
Even a conservative view for 1999 and on to the millennium cannot dim the prospects of additional progress not just in Internet-related businesses but in the fields of biotechnology and medicine. These are just a few of the prospects as we wind down the 20th century and prepare for what Aldous Huxley aptly called " A Brave New World".