A Unique Business Environment

Another aspect of Israeli society, however, is not as widely celebrated in the western world. These are so called collective communities you may know in Hebrew as kibbutzim. Going back to the founding days of the state of Israel, these essentially socialist settlements focused on a communal life. In time, capitalist elements were embraced by the broader society, and the kibbutz movement began to decline. However, it remains present today and continues making its contribution to the Israeli economy.

Some kibbutzim, originally focused on the agricultural sector. Now, they entered the business world by providing products that stretch far beyond Israel's borders. In fact, there are currently 20 multinational businesses operating on kibbutzim today. One such community is kibbutz Yizre'el. Kibbutz Yizre'el is home to Maytronics Ltd, which serves as its main source of income. Maytronics' specialty is development, production, distribution and technical support for swimming pool equipment, specifically robots for cleaning swimming pools. In addition, it produces alarms for protecting swimmers from drowning and other products for treating swimming pool water. Over the years, the company's products have proved to be very successful. Its robots are currently used by approximately a third of public pools. Globally, they are used in almost half of all private pools.

Innovation In Israel In Action

However, this was not always a case. The story of Maytronics originated back in 1982. A member of the kibbutz saw commercial sense in developing cleaning robots in distant South Africa. He pitched this idea to the rest of the kibbutz to buy a patent and develop it further. At the time, the kibbutz was going through a difficult financial situation. Their combined debt stood at around 125 million shekels. In other words, the kibbutz’s total cashflow was not sufficient to pay the interest. Despite this, the members of the community agreed to Hirsh's wild idea, and forged ahead. Twenty years later, the company went public and is currently traded on the Tel Aviv Stock Exchange.

Earlier last month, Mayronics made history by being the first kibbutz-owned company on Israel’s major stock market index (Tel Aviv-35). The TA-35 consists of the country’s 35 largest publicly-traded companies. Kibbutz Yisre'el is still a majority holder of the company, whose market cap is over 5 billion shekels ($1.6 billion USD) in August. To put it differently, the members of the kibbutz share between themselves a whopping 3 billion shekels. Ironically, Yizre'el is one of the last communities that remains faithful to its socialist founding ideology. Regardless of their position within the community, company corporate ladder or level of income, each member gives 100% of his salary to the kibbutz. In return, each member receives a stipend.

The Kibbutz Makes a Bold Choice

Having said all that, the kibbutz came close to losing this vast wealth. One of the world leaders in the industry approached them with an offer to buy a controlling stake. Nine years ago, in 2011, Hayward's offer of NIS 180 million for a 67% stake, an extremely attractive premium.

The Israeli company's valuation stood at NIS 345 million. Not surprisingly, the kibbutz member said no to this lucrative offer after an emotional meeting . Now, looking back, that decision was wise as Maytronics’ value has skyrocketed. Since then, the company's shares ascended by an amazing 2,600%!

Back in 2017 the kibbutz sold 10% of its shares for NIS 235 million. On August 20, 2020 they sold another 3%, raising the total of NIS 385 million from both transactions. Even after reducing their stake to 54%, Yizre'el remains in control of its flagship company.

This recent event has only reminded its owners that they made the right decision not to sell its stake a few years ago. Especially, as two-thirds of its annual profits is distributed as dividends.

Where Maytronics Stands Today

With the summer period being a busy one for Maytronics, as seasonal private pools sales increase, the company must adjust to accommodate incoming orders. However, this year delivered another boost as Coronavirus pushed people to stay at home. This served as an incentive for those who can afford to build a backyard swimming pool. During the pandemic, as stated by Reuters, demand for pools reached unprecedented levels around the globe. Manufacturers and distributors are scrambling to meet a wave of demand as consumers stay at home and avoid the virus.

Consequently, Maytronics has been enjoying a significantly higher level of sales of its leading product, the pool cleaning robot called "Dolphin". Even with a favorable environment like this year, the potential for growth remains high due to the fact that most of the pools remain serviced manually. According to Maytronic's CEO Eyal Tryber, there are approximately 20 million pools globally that do not have robots at all. Therefore, the company remains optimistic as it sees plenty of room for growth. From 32% of the total market share back in 2010, the company has climbed up to 48% last year.

The company has been exporting its products around the world for many years now. Currently, the European market is the largest in terms of revenue generation (45% of total sales last year). The United States is second (39%), and starting in 2011, the market presence Australia and New Zealand (11%) grows at a steady pace.

 Source: Company presentation

The Company Still Grows In Size And Innovation

Maytronics sells hundreds of thousands of "Dolphin" units each year. But, it is not only robots that keep customers choosing the Israeli firm. Alongside its highly efficient device, the company markets its anti-drowning alarm system together with pool covers. The management takes safety issues seriously and sees it as one of the potential engines for growth. Accordingly, Maytronics had to expand its production facilities beyond its plant at Yisre'el. In fact, there are two more plants – one in La Ciotat in France and another one in the Upper Galilee in Israel. This way the company is able to cope with any increase in demand when needed. Finally, Maytronics does not rest on its laurels. They remain committed to continual heavy investment in its Research & Development to keep its cutting-edge advantage over its competitors.

It is fascinating to see, how someone's idea and perseverance in developing a simple product such as a swimming pool robot, could result in a multinational business that currently exports 98% of its products worldwide. And maybe this is why a firm from a small Israeli kibbutz is managing not only to outgrow its local market, but is now the global leader in its industry.

If you are interested in learning how Wise Money Israel can help you invest in companies like this one, please contact us here.

Sources: Reuters, Calcalist, Globes, Ha'Aretz, Hadassah Magazine

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The current rate of advancement on this front point to a very feasible possibility of a fully autonomous automobile being developed in the coming years. And, as in numerous other occasions, it happened to be Israeli firms that have been making valuable contributions in this high-tech sector.

Following the success story of MobileEye, the Israeli technology sector has once again proved to be a fertile ground for the international investor community. Not surprisingly, another key player appears to be emerging on the stage – Foresight Autonomous Holdings. Launched as a spinoff from Magna BSP back in 2015 (the Home Land Security solutions company which specializes in stereo vision systems), the firm has been making headlines of late. Foresight is a developer of solutions for advanced driver assistance (ADAS) and fully autonomous (FA) driving applications, which is based on stereo and quadric camera algorithms. Foresight is not a regular hi-tech firm since its technology originates from Israel’s successful defence industry.

Despite its relatively small size, the company aims to further advance in the autonomous car sector through its artificial sensing technology as the industry moves toward a higher degree of autonomous driving. The fact that the company is just two years old, should not be a reason for concern as the team backing this enterprise has a proven track record of success. During recent years, its parent company, Magna BSP, has developed over ten adaptable passive electro-optic radar security systems. This technology is currently used to protect some of the most sensitive industrial and governmental facilities in Israel and around the world. Imagine that the very same technology used by the Israeli military is now operating in Foresight. Actually, to be more specific, its ADAS system is based on Magna’s unique radar system – Stereoscopy. Both the ADAS system and the perimeter security radar function very similarly – both have two cameras employed in the process to cover the same field of sight, providing an impeccable panoramic 3D view. A specially developed software, which is installed in the vehicle, supplies the driver with real-time alerts in all weather conditions. Moreover, its uniquely developed algorithm is capable to map objects as little as 50cm, providing a driving experience unlike any other.

Earlier this year, Foresight showcased its leading product , QuadSight™, at the prestigious Consumer Electronics Show. With the device demonstrating near 100% obstacle detection and near zero false alerts, the company is now looking far beyond the Israeli market.

Furthermore, the Chinese government has approved new regulations directed to boost the usage of ADAS by 2020, and Foresight seems to be well placed to reap the benefits from these recent changes. The company has already completed successful pilot trials with three major Chinese OME. As a result, a leading global Chinese electric vehicle manufacturer has ordered a prototype of QuadSight vision system. In addition, a truck division of a large European car manufacturer has also purchased the system in order to evaluate its performance on vehicles it produces.

It may still be early days for Foresight and it yet to generate profit, but its unique technology has already roused interest from key players in the automotive industry. Time will tell how greatly the company fares, but so far, the firm has proved to be more than capable to deliver on its promises.

Sources: Globes magnabsp.com foresightauto.com news.techtime.co.il businesswire.com edisoninvestmentresearch.com

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For decades Israel’s high-tech start-up scene has been considered one of the most exciting and impressive in the world, on par with Silicon Valley, and producing game-changing technologies that continue to push the innovative envelope. Israel ranks #2 for venture capital availability, and is ranked #3 in the world for innovation[1]. With over 3,500 start-ups (mostly in hi-tech), there are more start-up companies in Israel than in any country in the world per capita, and only second to the U.S. in absolute terms[2].

In a statement, Israeli Prime Minister Benjamin Netanyahu said that “Israel is a nation that sanctifies innovation. We’ve achieved great heights, but we cannot stop now; we want to continue climbing.” [3]

In Israel, the publicly traded market of stocks and bonds, aka the Tel Aviv Stock Exchange (or TASE), is completed separated from privately owned companies, including start-ups in their initial stages of funding. This has limited the ability for investors around the world to gain exposure to Israeli start-ups rapid growth and frequent exit successes, and at the same time prevents the flow of much needed capital into the developing start-ups. As a result, many young Israeli start-ups end up being purchased by foreign companies causing the technology, manpower, jobs and overall economic value generated from Israeli high-tech start-ups to leave the Israel market.

However, change is in the wind as Israel’s financial decision makers are formulating means to make these Israel tech start-ups investable by large and small investors alike.

The Israel Securities Authority (ISA) is in the final stages of approving new financial instruments that will benefit both investors and start-ups alike, allowing investors to gain exposure to Israeli high-tech start-ups on the one hand, and start-ups to raise more capital on the other, serving as an incentive to keep Israeli tech in Israel. One of these instruments are closed-end mutual funds that will be fully traded on the TASE and open to all investors, both institutional and private.

These hybrid funds will invest part of their assets in Israeli private start-ups pre-IPO, and part of their assets in publicly traded Israeli tech firms already traded on the TASE. This will provide wide access to the excited world of Israeli innovation, while reducing the risks and high barriers of entry currently experienced by non-accredited and smaller investors. It also offers regulatory oversight and transparencies to these start-ups, as is standard with Israeli publicly traded companies.

The ISA plans to roll out four closed-end high-tech mutual funds with a minimum of 400 million NIS per fund (approximately $115 million) towards the end of 2017 and into 2018. The TASE states that “these funds will be entitled to invest up to 30% of the capital raised in non-traded financial assets, which may be adjusted to 50% in the future should investors be granted government guarantees to mitigate investor risk. At least 5% of the sum raised will be invested by the fund manager. The funds will be able to operate as fixed-term funds limited to a life span of 15 years.”[4]

Additionally, the State of Israel will offer loss protection for the investments in private growth companies up to 20% of the investment and will also guarantee debt raising of up to 25% of the funds size. This governmental backing signals their commitment to both the start-ups and to investors, giving a strong tailwind to the move.

Besides offering exposure to both public and private companies and gaining significant government incentives for investment, these funds will be fully liquid and transparent as with all the securities traded on the TASE.

The TASE is currently undergoing very positive structural and strategic upgrades which it estimates will “enhance competition in the capital market and attract new members from Israel and abroad. It is expected to benefit investors by rendering TASE more prominent and accessible to the public”[5].

Currently, investing in Israeli stocks and bonds through the TASE is the most secure and accessible way to invest in Israel, and with these upgrades coming, it will be all the more so.

[1] World Economic Forum, 2017-2018 Edition

[2] Israel21c.org

[3] nocamels.com

[4] tase.co.il

[5] tase.co.il

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