Israeli Startup IronSource Eyeing Sale of Shares in the U.S.

Online software distribution company opening office in China and to mark occasion, hosting right now a delegation of Chinese entrepreneurs and public figures.

David Bachar

IronSource, the Tel Aviv-based startup that distributes software over the Internet, is planning a share offering in the United States led by Morgan Stanley and J.P. Morgan Chase, sources have told TheMarker.

It is not clear at this stage what valuation will be placed on the company or whether shares in the company will be sold in a public offering or a private placement. However, the recent sell-off of Internet stocks overseas is apparently not dissuading the company from its plans, after a planned merger with Babylon, the online translation firm, collapsed.

Over the next several weeks IronSource is expected to begin work on valuing the company and weighing how many shares to sell. The merger with Babylon, which was called off last fall, valued IronSource at $800 million.

Founded in 2009, IronSource has been turning a profit for the past several years. The proceeds from the offering would be used to expand its operations, possibly through acquisitions. It would also enable its shareholders — the founders collectively own about 85% while Carmel Ventures owns the rest — to cash out on some of their stock.

IronSource is itself the product of a merger of four companies, each of which brought a product line to the combined venture as well as customers and cash flow. Since then, IronSource has purchased four local startups and has a staff of about 200 at new offices on Lilienblum Street in Tel Aviv.

The merger with Babylon was scrapped after the online translation firm in November lost its contract with Google, which had accounted for nearly half it revenues. That left IronSource’s founders and Carmel without any immediate the prospect of an exit, so they began pursuing the strategy of a U.S. stock offering.

The Internet technology sector has been going through tough times on the capital markets. Share prices for Internet ad companies have skidded, dissuading investors from putting their money in relatively unknown companies in the business, like IronSource. Matomy, the online advertising firm, dropped plans for a London share offering that would have valued the company between $380 million to $480 million before the money. The website-building company Wix retreated from plans for a second share offering.

Meanwhile, IronSource is opening an office in China and to mark the occasion, the company is hosting right now a delegation of Chinese entrepreneurs and public figures. On the occasion of the expansion of IronSource’s operations into China, the company, along with the Infinity investment group, organized the visit to Israel of the Chinese delegation. Prime Minister Benjamin Netanyahu was among those who met with its members.

One member of the delegation, which is being co-sponsored with the Infinity investment group, is Xu Xiaoping, whose New Oriental Education & Technology Group is traded at a market capitalization of nearly $4 billion. On his first visit to Israel, Xu’s Zhen Fund has already invested in two Israeli companies — Pebbles, which has developed a sensor that replaces the traditional TV remote control with hand movements, and Cortica, which has its development center in Israel and has developed an algorithm to conduct Internet searches via image recognition.

Xu said he would cooperate with IronSource in its venture in China and counseled that the Chinese operations should have their own separate ownership structure.