...Or Go Forth To The U.S. And Prosper

NASDAQ investors are salivating for more hot Israeli issues

America's tech-stock fever has reached Israeli shores. But the hottest action isn't in Tel Aviv. It's on America's NASDAQ stock market.

With local entrepreneurs long counting on Wall Street investors to snap up the best of Israel's high-technology equity offerings, investment banks are now lining up as many as 30 new issues to go public on NASDAQ in 1996, predicts Shlomo Kalish, managing director of Jerusalem Global Consultants. All told, Israelis may unload a record $700 million to $800 million in new shares and secondary offerings this year, up from $450 million in 1995.

Enthusiasm is so high that shares in one hot company that went public in February--ESC Medical Systems Ltd., a maker of devices to zap varicose veins with pulses of light--nearly doubled in value in their first few days of trading on NASDAQ. The company, whose 1995 sales and earnings were only $8.4 million and $2.8 million respectively, now trades at $25, with a price-earnings ratio of 55.

PEACE PROCESS. In listing its stock in the U.S., ESC joined 65 other Israeli high-tech companies already trading on Wall Street, including equipment maker ECI Telecommunications, whose shares climbed 88% last year, and Teva Pharmaceutical Industries, up 77%. Now, investors are salivating over what's likely to come next.

And why not? Israel's booming economy, the ongoing peace process, and the end of the Arab boycott are buoying hopes. So investment bankers are racing to Israel to scout for promising deals. "They're busy assessing hundreds of Israeli startups to determine which ones will be the ECI Telecoms and Tevas of the future," comments Ori Eisenberg, executive vice-president at Israeli investment bank Dovrat Shrem & Co.

Among NASDAQ initial public offerings expected soon: CheckPoint, a leader in network security software, and Orbot Instruments, a maker of semiconductor inspection devices. Tadiran Telecommunications, a maker of telecom and networking equipment, also is expected to sell stock. Adding to the IPO frenzy is the arrival of a clutch of tech-oriented American investment banks including Robertson Stephens, Cowen & Co., and Montgomery Securities. "The entry of the highly specialized technology boutiques is a further upgrading of Israel on the international investment map," says Ron Lubash, a managing director at Lehman Brothers Inc. in Tel Aviv. On Feb. 6, Cowen announced plans for its first Israeli initiative: a $50 million venture-capital fund that will invest in high-tech Israeli startups.

The entry of new firms into the Israeli market is producing cutthroat competition for deals and fears that bankers are lowering their standards, says Zeev Holtzman, managing director of Giza Ltd., a Tel Aviv consulting firm. Holtzman fears some companies that aren't ready for the market are going public. His concerns recall a similar tech-stock mania that swept Israel in the early 1990s. That one led to the failure of a number of offerings.

This time, there are some jitters, too. A few days after ESC made its debut, Hambrecht & Quist investment bank brought out shares in Vocaltec Ltd., a small manufacturer of software that enables computer users to carry on telephone conversations via the Internet. Usually, anything connected with the Net sells like mad. But just a few days before the public offering, Netscape Communications Corp. had licensed the rights to a competing technology developed by Voxware Inc. of Skillman, N.J. Vocaltec opened at 19 and plunged. It now trades around 13.

Despite the Vocaltec hitch, Jerusalem Global's Kalish--who also is the local representative for Montgomery Securities--believes it's too soon to call a quick end to the Israeli IPO boom. As long as the country continues to produce more than its share of high-tech winners, the investment bankers will be on the prowl for the next generation of success stories.

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