Breath of Life, the medical cannabis company, withdrew what was supposed to be the biggest-ever initial public offering by an Israeli company in Canada. But that high-profile setback belies a growing trend by Israeli companies to bypass the Tel Aviv Stock Exchange for a listing in Canada, especially the Toronto Stock Exchange.
BOL had big plans, but they were apparently too big for investors who looked askance at its 1 billion Canadian dollars ($760 million) valuation.
On the other hand, since 2013 seven Israeli companies have conducted IPOs on the TSX and there’s a list of others that have filed prospectus for IPOs in the future. Even though Canada has staked out a place at the world’s center for medical marijuana listings (a function of the country’s liberal policies on medical and recreation cannabis use), the Israelis who have opted for the TSX are in high-tech and pharma.
The latest to join the TSX is Else Nutrition, which is developing plant-based nutrition products for the infant, toddlers, children and adult. It went public last month at a C$17 million valuation and since it began trading June 18 has seen its shares jump 156%.
Other recent entrants include Adcore, a search-engine marketing company that went public at a C$27.5 million valuation in May and whose shares have since risen 7%. The agro-technology company Water Ways, which began trading in March, has seen its shares drop 48%.
Among companies filing prospectuses are PlantEXT (medical marijuana), A2Z (robotics) and Neurocords (biotechnology).
It isn’t by chance that the TSX is seeing so much interest from Israeli companies. The exchange has a home for small tech companies called TSX Venture Exchange. Two years ago it designated Israel as a target market for new listings and hired Yossi Boker to head a local recruiting drive.
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That’s put Toronto into head to head competition with the TASE, which has been trying to lure local companies, and the Nasdaq, which is home to scores of them already. Naturally Boker, who comes from the high-tech world, holds that the TSX has an advantage over both.
The TASE is handicapped by the fact that Israeli institutional investors have generally stayed away from high tech.
“Another reason is the idea that successful technology companies need to go out to the great wide world and not go public in their own backyard,” he said. “A Nasdaq IPO is also a seal of quality that shows your company is among the best.”
But, as he sees it, Nasdaq’s traditional role has weakened over the last 15 years as the tech world has come to be dominated by the giants like Google, Facebook, Amazon and Apple.
“The situation is that if a companies of tens of millions of dollars or single millions of dollars comes to Nasdaq, almost no one will recognize him. You see Israeli companies with valuations in the hundreds of millions of dollars suffering low levels of trading liquidity and a paucity of analyst coverage,” he said.
Unlike the Nasdaq, TSX Venture is a comfortable place for companies that want to list a valuation of $100 million or less. It costs less to conduct an IPO and the investment community of TSX Venture is familiar with the ups and downs on the high-tech world.
“When a company goes public on the Toronto main board and its shares falls, it’s traumatic. It runs against the idea of a stock exchange as a place of create value,” said Boker. “TSX Venture is different. The investors – households, private investors and family offices ... know that some companies will succeed and others will fail. That’s part of the equation.”
Indeed, among the seven Israelis companies that have listed on the TSX since 2013, three have seen their shares fall since their IPOS. Besides Water Way, Kalytera has dropped 678% since January 2017 and Vaxil Bio has fallen 36%.
One way the TSX encouraged small companies to list is through its Capital Pool Company program. Similar to special purpose acquisition companies in the U.S. and Britain, CPCs are publicly traded shell companies formed with the purpose of merging with an existing business.
Doron Cohen, whose A-Labs advises small tech companies on financing, lauds the CPCs as a simpler track for a small company to go public. Because the company already exists, it doesn’t need regulatory approval when it goes public via a merger. Indeed most of the publicly traded companies on the TSX went through the program.
“Most pool companies raise the minimum capital of C$100,000,” he explained. “Then we join the shell company to a company with operations and a investment bankers prepares the prospectus. … At the endof the process we do a share offering and raise capital.”