Latham & Watkins in a string of Israel-related debt and equity offerings
Amidst all the commercial uncertainty surrounding the Coronavirus pandemic, it is business as usual for Latham & Watkins, who have been involved in 16 Israeli-related capital markets transactions since the beginning of the pandemic, including 9 completed IPOs, 4 convertible bond offerings and 3 follow-on offerings.
Recently, the firm advised the underwriters on the mega IPOs of unicorns JFrog (USD 509 million) and Israeli-founded telehealth company Amwell (USD 742 million), as well as advised on the highly successful life sciences IPOs of Nano-X and PolyPid. Latham also advised Jefferies on the ground-breaking globally marketed Tel Aviv Stock Exchange IPO of value retailer Max Stock. A number of Israeli public companies raised money during the pandemic through follow-on offerings, including Fiverr, Audiocodes and Kornit.
Another hot product this year has been convertible bonds offerings. In recent years Latham has helped create the structure for convertible offerings by Israeli-incorporated issuers and the firm advised on all four convert deals by Israeli issuers so far this year, advising Wix on its massive USD 575 million offering, Fiverr on its USD 460 million convert which generated record demand, Nova Measuring Instruments on its USD 200 million upsized offering and the underwriters on NICE Systems’ recent USD 460 million convertible bond offering.
Ranked the #1 M&A legal advisor globally as well as in Europe, the US, and the UK for the first three quarters of 2020, according to the latest league tables published by Mergermarket, it has also been a good year for Latham & Watkins in Israeli M&A. The firm advised on the largest M&A deal of the year, advising Mellanox on its USD 7 billion sale to NIVDIA, which is also the second largest ever Israeli tech M&A deal.
We caught up with London partner, Joshua Kiernan, Head of the Israel Practice
- What have been the challenges in getting these IPOs or convertible bonds completed in the current climate?
The pandemic has created both challenges and opportunities. On the opportunity side, the US capital markets have reached record highs despite the pandemic as the US government continues to pump money into the system. Large institutional investors have been hungry to invest in innovative technologies and are particularly focused on companies that have managed to thrive despite or even because of the pandemic. Companies that play well in the shift to remote working, particularly Wix and Fiverr, have seen their market caps take-off with investors lining up to buy the securities of these companies. Similarly, e-commerce, digital health and SaaS companies such as Lemonade, vroom, AmWell and JFrog have all weathered the storm and thrived during the shift to remote working by offering products and services that fill critical needs during the pandemic. Similarly, there has been an explosion of life sciences IPOs this year as healthcare issues and life sciences innovation have been making daily headlines.
In fact, during the first months of the pandemic, most of the IPOs we saw going to market were in the healthcare space. By June, however, a large pipeline of tech IPOs started coming out of the gate as the markets saw that many technology companies have been resilient despite the pandemic and in many cases growing exponentially by providing important products and services in this environment.
Israel has been particularly successful because of the gig and life sciences economy. While many industries have unfortunately been hit hard during the pandemic, and we are only now starting to see the large wave of bankruptcies that are resulting from the pandemic, Israel’s disproportionate reliance on the tech and life sciences sectors relative to other economies has raised investor awareness of Israeli innovation and thought leadership in tech and life sciences, making global investors hungry for Israeli-related stocks.
Evidence of this can be seen in the string of highly successful convertible bond offerings out of Israel this year. Prior to 2020, there were only three Israeli convertible bond offerings over the last five years. In 2020 alone, there have been six Israeli-related convertible bond offerings (four by Israeli-incorporated issuers), and five out of the six deals were done with a zero coupon, which means that investors were willing to buy the bonds even though they pay no interest, in the hopes of getting the upside on the equity one the bonds covert into shares. This is a dramatic and positive sign as to how the markets view Israel’s most innovative companies such as Wix, Fiver, Nova, Nice and Solaredge.
On the challenges side of the equation, particularly during the early stages of the pandemic, companies and their advisors, including banks, lawyers and accountants, had to get used to a new way of working – no face-to-face drafting sessions and negotiations, and no flying around the world to meet investors in-person during road show meetings. Everything is being done remotely now. While initially this raised questions as to how this could be done efficiently, it turned out that companies could get their deals done even in a remote working environment, and in some cases more efficiently and cost effectively. Road shows for example that normally lasted two weeks are being done in shorter time frames and companies are saving significant expenses in travel and other costs typically associated with these deals, not to mention the physical burden on management of having to constantly travel during these deals. Time will tell, however, whether such remote deal making can truly replace the tangible and intangible benefits of physical, in-person meetings.
- What factors have helped Latham get these across the finishing line?
A key factor that enabled us to get these deals across the finish line includes a sense of urgency amongst our issuer clients and underwriters to execute deals quickly. Due to the uncertainty of the environment, it is hard to predict if the offering window will close tomorrow with a major market correction, or in another six months, or at all. So, companies felt under pressure to move fast so as not to miss an open window. This focus by our clients and underwriters played a key role in many of our deals getting done in record time this year. Other key factors are the commitment of our team and our firm culture, which emphasizes working collaboratively and with total commitment to our clients, however complex the deal or tight the deadline.
Latham also has the leading IPO practice and leading convertible bond practice in the US, we live and sleep these deals, we have created many of the most innovative and market standard deal structures and so we know how to manage deals and execute them quickly and efficiently in a way that few other firms can.
- What does the outlook look like for other IPOs over the next 6 months or so and which sectors are you seeing as hot in Israel?
Many of Israel’s leading tech companies have already raised money this year through follow-on offerings and convertible bonds, so we expect to see a slowdown in issuances by the large Israeli tech companies. On the other hand, we expect to see companies in industries that have been harder hit during the pandemic looking to access the capital markets in order to raise funds to keep them above water and to weather a potentially extended economic downturn.
On the IPO front, remarkably, we believe there is an even larger IPO pipeline building for 2021 compared to 2020, assuming markets hold up. This is due to the fact that Israel has seen an explosion in tech unicorns in recent years that have reached IPO level maturity. The pandemic is also playing a part – many of these companies have managed to thrive during the pandemic and with the significant growth in their business this year, some of these companies may accelerate their IPO plans. On the life sciences front, many companies faced delays in their progress as a result of having to halt clinical trials, and many of these companies will be looking to initially raise money through cross-over rounds, and having anchor cross-over investors has almost become a must have before a life sciences company can conduct an IPO. We therefore expect to see Israeli life sciences companies, many of whom are pre-revenue and therefore have more immediate funding needs than many technology companies, looking to access the IPO market.
All of this, of course depends on the resiliency of the capital markets. Many factors could negatively impact the markets and cause a flight to safety away from stocks, whether it be the US elections or anticipation of a prolonged economic downturn. Unfortunately we do not have a crystal ball, but on the positive side Israel has more promising tech and life sciences start-ups than at any other time in its history, and so if the window remains open, these dynamic and innovative companies will no doubt fly through it.
