The online translation company Babylon said on Sunday it was cancelling a long-anticipated initial public offering on Wall Street to focus on merger talks.
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“The company at this stage is investing its efforts in conducting negotiations for the merger with IronSource,” Babylon said in a statement to the Tel Aviv Stock Exchange. Babylon shares were up 2.4% to NIS 28.49 in early afternoon trading on the TASE Sunday.
Babylon filed a prospectus in November 2012 at a time when its shares were trading on the TASE at between NIS 28 and NIS 33, but the company never followed through with the process. The market speculated that management regarded market conditions as poor. In the meantime, Babylon shares fell to as low as NIS 18, another factor that apparently discouraged the company from pursuing the IPO.
Babylon has not necessarily given up on its IPO plans. Under SEC rules, the company could no longer ask to extend the shelf-life of the existing prospectus and so had no choice but to withdraw it. But market sources said it was likely Babylon would file a new draft prospectus after the merger between the two mid-sized Internet companies is complete.
“It would be difficult for [Babylon] to win a high valuation because of its relative size and because of the discounts investors look for in IPOs,” said Beni Dekel, an analyst at Union Bank of Israel. “After the merger with IronSource, Babylon will be a big enough company and will enjoy synergies from the merger that will enable it to float shares on the Nasdaq ... without a big discount.”
The merger with IronSource, which was announced five weeks ago, is likely to be concluded within the next few months. Industry sources believe that IronSource shareholders will get two-thirds of the merged company, whose market valuation could reach as much as $1.2 billion. Babylon shareholders would receive the rest.
Itai Milrad, Eyal Milrad, Roy Milrad and Tomer Bar-Zeev each hold 17% of IronSource. Under the merger deal each of them would receive shares in the new company worth NIS 475 million.
Babylon, whose TASE market cap is about NIS 1.4 billion, develops translation software but makes most of its money from its browser toolbars. It had NIS 163 million in sales in the second quarter. Closely held IronSource, one of Israel’s fastest growing Internet companies, was founded in 2009 from a merger of several smaller companies and now has revenues of $150 million to $200 million a year. Its main product is installation software, used by many of the world’s most popular downloading websites.