Babylon in Merger Talks With IronSource Ahead of Possible Nasdaq Listing

The two Israeli software companies are negotiating in expectations of consolidation in the search market.

Software company Babylon said Tuesday it was in preliminary merger talks with another Israeli company in the sector, IronSource.

Both firms are mid-sized players in the Internet industry, with Babylon, a specialist in search and translation software, trading on the Tel Aviv Stock Exchange at a market value of around NIS 1.42 billion - around $400 million. That reflects the stocks 12.4% rise Tuesday. Privately held IronSource is believed to be worth in the hundreds of millions of dollars.

Babylon did not mention any merger terms, which it said were still under discussion and likely to change. The company added that the talks were in the early stages and there was no guarantee a tie-up would happen.

IronSource was cofounded in 2009 by CEO Tomer Bar-Zeev following the merger of several software companies. Its main product is installation software used by many of the world's most popular downloading websites. The company, based on Tel Aviv's Rothschild Boulevard, has more than 100 employees.

Babylon CEO Alon Carmeli hinted at a merger when the company released its second-quarter earnings two weeks ago.

We believe that the search market in which we operate is moving toward mergers and acquisitions, Carmeli said at the time. New players are being added every day, many of them Israeli Internet companies, and were constantly examining interesting possibilities for partnerships and acquisitions.

Market sources said a merger was a preliminary step toward a Babylon initial public offering on the Nasdaq. Babylon has been the subject of IPO rumors for a while now, with people in the capital market saying yesterday that the delay seen as appears to have stemmed from a desire to complete the merger first.

Babylon made a net profit of NIS 40 million in the second quarter, a 74% increase from a year earlier. Revenues rose 3% to NIS 163 million. The drivers were Babylon's partnerships with Google and Yahoo, which provided 43% and 32% of quarterly revenues, respectively.

I

David Bachar