Investor Insight: Marc Lesnick, Fortissimo Capital Fund
Written by: Zack Miller | February 10, 2008
This interview with an asset manager active in Israeli markets is part of our new subscription newsletter, Israel Opportunity Investor. You can find out more about the product and the opportunities we cover at www.israelnewsletter.com
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Can you tell us about your firm?
Marc Lesnick, Fortissimo Capital: Fortissimo Capital Fund is a special situations Israeli-related private equity
fund focused primarily on maturing technology companies that are at a point of inflection. We provide transformational capital, taking an active role in assisting portfolio companies with improving fundamentals and facilitating growth. Our initial fund manages in excess of $100 million and is backed by the leading Israeli financial institutions (banks, insurance companies and pension funds). We plan to initiate fund raising for our second fund in the coming weeks.
You recently had an exit when NUR Macroprinters was sold to Hewlett Packard. Can you tell us a bit about that process?
ML: NUR Macroprinters is a perfect example of our approach. When we invested in NUR, many people did not understand why we made the investment. The company was losing money and was heavily in debt. We saw that as an opportunity and took a controlling interest in the company. We believed that NUR possessed a leading technology (UV-based wide format printers), in a growing market. We were able to renegotiate the bank debt (banks wrote off half the debt in exchange for 8% warrants), recruit stellar management (previously CEO of Scitex Vision, a competitor that was sold to HP (NYSE: HPQ)), and implemented a new strategy. Within a short period of time (less than 2 years), we significantly cut costs,increased revenues from $70 million to a run rate of $100 million, increased gross margin from 25% to nearly 40% and turned a company that suffered from huge losses to achieving profitability.
After correcting the fundamentals, several industry players approached the company and we were heavily involved in negotiating the sale to HP for $123 million.
Congratulations on that success. What else have you done recently?
ML: We recently acquired AOD, which was a divisional spinout from Magic Software Ltd. (Nasdaq:MGIC). Magic needed to focus on its core business and AOD was a company that addressed a vertical market using Magic’s
application. We saw this as an opportunity, believing that as a division within a larger company, AOD was unable to unleash its full potential. The company develops and markets software that fully integrates financial, clinical and operational modules specifically designed for the long term care and senior healthcare industries. It has a 20% market share in this growing market and there is potential expansion geographically as well as into
adjacent markets such as assisted living and nursing homes.
How has the recent slide in global financial markets impacted your business?
ML: Being a fund that targets companies in “special situations” (challenged by a change in the market, technology, competition, management etc), in the current investment climate our deal flow has been better than ever. It is becoming more difficult for companies to obtain public financing, so they are turning to private equity funds to provide capital and strategic guidance. We also invest in public companies and are finding many undervalued technology companies that with some strategic partnerships, joint ventures and/or acquisitions could gain market share and significantly enhance their value.
You have raised $24 million in a SPAC; do you foresee SPAC’s as viable vehicle to finance deals in the future?
ML: We raised a SPAC (special purpose acquisition company) in October 2006. We announced a business combination on January 15th with Psyop, Inc., a company that is a leading provider of design based 3D animation,
innovative visual effects and digital content for the advertising market. We will assist them with opening an R&D facility in Israel so that they can develop proprietary tools that will enable them to retain a leading edge in the industry. The company experienced explosive growth during the past year, with revenues increasing 72% from $11.8 million in the first nine months of 2006 to over $20 million during the same period in 2007. I believe that there will be more Israeli companies interested in SPACs during 2008, realizing that it is a viable avenue leading to a public financing on NASDAQ.
How does Israel stack up globally with regard to deal flow and valuation?
ML: There are many attractive investment opportunities in Israel. More than $10 billion was raised by VC’s and an even larger amount was raised by Israeli technology companies on public markets during the past decade. Many of these companies are maturing and seek additional capital in order to enhance their growth and market reach.
Whether justified or not, there is a mentality of allocating a certain degree of an “Israel discount” to Israeli companies. This is experienced more so on an IPO than in a private financing. One of the greatest challenges in funding Israeli private companies is managing valuation expectations. Valuation is always a sticky issue for Israeli entrepreneurs, but the more sophisticated ones realize that it is prudent to own a smaller piece of a larger pie. We structure transactions with earn outs, equity-kickers and other mechanisms that reward entrepreneurs for performance so that at the end of the day our interests are aligned and it is a win-win situation for all involved.
Thanks.
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