InterviewJefferies opening office in Israel, President declares, “This is just the beginning"
Interview
Jefferies opening office in Israel, President declares, “This is just the beginning"
Brian Friedman, President of the prestigious American investment bank Jefferies, is setting up the local branch in a time of crisis, because "the pricing of Israeli companies is more attractive than ever." He expects the arrival of 20 private funds by September, and believes the worst of the crisis is behind us
"We've never been so busy in Israel, and I've been working here since the 1980s. In the last two weeks, 10 Jefferies bankers have come here," says Jefferies Investment Bank President Brian Friedman. "Currently there are seven deals in the pipeline - acquisitions and also private investments - and this is just the beginning. There is a real train of investment funds that have not operated here to date, and after the change in market pricing they see the companies here as very interesting. By September, 20 private funds will arrive in Israel. We organize for the private funds that come to see Israeli companies, something similar to organized tours. There are also wealth funds of certain countries and mutual fund management companies that want to meet with public companies."
In an exclusive interview with Calcalist, Friedman reveals that it is precisely now, when the market is apparently slowing down, that it was decided to open a permanent Jefferies branch here, which will employ several workers. This follows the sharp rise in activity that has brought almost every week several company workers to Israel. The activity in Israel will be managed by Natti Ginor, who already coordinates most of the local activity.
Isn’t it a little late? After all, in the high tide years you did not have a permanent representation here.
"Pricing in the Israeli market is now more attractive than ever. There are public companies that grow by 50% a year and trade at low multiples. Some funds want to make a takeover bid and take them private. Some companies planned an IPO this year, had to postpone it and would be happy for private investment. There is also a resurgence of mergers and acquisitions around the world, and there are positive signs of this in the activities of Warren Buffett, who has already made two acquisitions, as well as the huge deal in which Broadcom acquired VMware for $61 billion. Some funds say: 'In order for Israeli companies to make the big leap, they must make acquisitions. Now there are opportunities for that, and we have the checkbook. The tone in the last two months is completely different, and it does not seem like something temporary, but a fundamental structural change in looking at Israel. We always thought about it, but there was no urgency. Israel has always been important for us, like Northern California, but in recent years it has not only been about the technology and biomed industries, but also the financial sector that has developed greatly and is more interesting than before."
Jefferies has entered the Big 10
Jefferies is far from the size of Goldman Sachs or UBS, but the significant leap it has made in recent years has put it in the top ten of U.S. investment banks. A negligible 0.1% share of the investment banking market in 2000 for Jefferies mushroomed last year to 4% of the market estimated at $100 billion. The bank's annual profit doubled to $1.7 billion after revenues jumped 37% to $7.1 billion.
Investment banking generated more than half of the revenue with $4.4 billion. Prior to joining Jefferies, Friedman, a lawyer by profession, previously worked at the Furman Selz boutique investment company, which was sold to ING Bank. According to rankings released by Dialogic, Jefferies rose to eighth place in global investment banking and seventh in global mergers and acquisitions. The bank, which employs 4,500 people, is also active in Europe with 1,000 there and has 500 employees in Asia.
In parallel with its growth, Jefferies increased its activity in Israel, with some deals which initially encountered a backlash. The bank's first deal to make headlines here was the IPO of the Tel Aviv Stock Exchange itself in collaboration with many foreign investors. Later, in the midst of the Coronavirus pandemic, Max Stock was issued in similar fashion with 70% foreign investors, and about a year ago it was behind the IPO of Nayax, the first unicorn to choose to issue at home in Israel rather than on Wall Street. At the same time, Jefferies served as the underwriter of the huge $11 billion ironSource SPAC merger. Jefferies also participated in the IPOs of Global-e and SimilarWeb in New York in 2021, and played a role in the deal in which the venture capital fund Vertex sold part of its portfolio to the American StepStone fund.
What is your position on the SPAC mergers, which are currently under scrutiny by the US Securities and Exchange Commission? Will this model return to Wall Street?
"I never say 'nothing and never.' SPACs also have a future. Looking back 12-18 months there has been massive activity in this market, and probably more than it can contain. But the concept itself is still valid. In a sense SPACs were an opportunity for the public market to participate in the venture capital industry and private equity funds, which was not available to the general investing public. This is an entry into another area - a little earlier in the company’s life."
The difference between a factory and a tailor
Jefferies enters the Israeli market, saturated with large and strong competitors, such as Goldman Sachs or UBS.
How can you compete with such giants, who have been operating here for years?
"It's like the difference between a factory and a tailor, and we are a very large tailor, who brings very specific solutions to customers. The other banks that come from banking come from somewhere else. We see this in the growth of the business and in our results."
When it comes to IPOs or SPACs, what's so unique about you?
"In the good times it's more standard, but in the not so good times it requires a lot more care and thought. Personal tailoring. Our executives and veterans are very involved, and in the big banks this doesn't exist. For the past 25 years, especially since the Fed changed banking definitions under the Glass–Steagall legislation, 'regular' banks have come to Wall Street. It welded Wall Street to the banks, but if you look at this development today, it didn’t really work out well. Efforts have not been well managed, and we believe we are left as the one last real Wall Street firm. Today we compete head to head with the banks - Morgan Stanley, JPMorgan, Goldman Sachs - but we are different in that it is a group of people who first think of ideas and sew something personal."
What deals do you plan to look for here in the coming year?
"The dynamics in Israel are not fundamentally different from the United States or Europe, but relative to the size of the population, there is more entrepreneurship and technology here, and we very much identify with that. I have been doing business in Israel for more than 30 years, even before I joined Jefferies. In my previous firm I did the IPO of Gilat Satellite Networks, we worked with Teva and we also accompanied the IPO of Scitex. I know everyone."
Are you afraid of the change that is taking place in the public market, which has already begun to reflect on the private market? Many of those who entered here in 2001, at the height of the bubble, fled quickly.
"There is a huge difference between the sentiment in the first and current technology bubble. In 1999-2000 people were still trying to understand the capabilities and power of the internet, and many mistakes were made. Now it's more a matter of exaggerated expectations and levels of value. When there is less liquidity companies are worth less, but it is only re-pricing, given the new circumstances. We just have to decide what the new price is, and this is already a more normal and routine behavior of the economy and of its cycles."
What is similar and what is different in the current crisis compared to the previous ones?
"It's hard to describe how many challenging times I went through in my career, and fortunately the world never comes to an end. Experience shows that with each round we become more sophisticated, so recovery is faster. In 2001 it can be said that the recession lasted two years, but in retrospect these were only two years, from which we have recovered and a lot of interesting opportunities have been born. Jefferies thinks more broadly than just concepts of offerings or SPACs, which do not represent even 20% of our activity. We are very active in mergers, corporate refinancing, private investment, trading and other areas. True, there is a slowdown, but the market has not stopped. A lot of players will go through the current atmosphere and come out strengthened. If the company has no capital, there is capital available in the funds, if it cannot raise, it can be sold. The question is always the price, but the capital is available."
Everyone almost obsessively asks if we have gotten to the bottom. What do you think, given your experience on Wall Street?
"If I had an answer, I would be a trader and not sit here with you. The economy is struggling with inflation, which the pandemic and the war in Ukraine are increasing. The challenge for the world is to understand how much of inflation is structural and how much is transitory."
Have we not already gone through the discussion of transient inflation?
"The question is what part of it will pass and what part is structural. The bottlenecks created during the corona period are starting to open up, and the big question is how the Fed will act - whether it will take dramatic action and what its scope will be. It is difficult to predict whether there will be a soft landing or not. Markets are moving ahead of the economy, so the trend may change there before the economy itself takes the turn. If we compare the recent decline in shares to the beginning of the pandemic in 2020, or to the crises of 2001 and 2008, we see that a large part of the damage has already been done. The bond market has also suffered many blows. In previous crises, the bond market has risen and not fallen. Sometimes, when everything goes down, people go into a frenzy believing that from now on the market will always go down. But that's not what's happening. There will be a dance around the bottom, but no one will whistle and shout, 'We have reached the bottom, from now on we are starting to go up'. I tend to look for positive signs, and one of them is the purchase that Warren Buffett's Berkshire Hathaway made. In general, after a significant move in the markets, the giant companies such as Broadcom, start making big moves when they think that value has already been created in the market. Is the situation currently dejecting? Yes, but today's melancholy is what creates tomorrow's opportunities."
As someone who remembers periods of high inflation, like in the 1970s and 1980s, can you give us some tips?
"Businesses at the time were inefficient, and did not think forward enough, which created an imbalance in the economy. In the case of the United States, there was still a shadow of the Vietnam War, and that required tremendous efforts on the part of Paul Volcker (Federal Reserve Chairman 1979-87) to break inflation. The market began to recover in 1982, before inflation calmed down, as it foresaw the end of the event. It also happened by chance to occur in the early days of technology with the advent of the first personal computer in 1984. The world today is much more sophisticated, and there is better coordination between the economies of the countries. I am an optimist by nature, who is aware of the risks and manages them."
Brian Friedman (65)
- Position: President of the Jefferies Investment House
- Previous positions: Head of Investment Banking at Furman Selz LLC, lawyer in New York
- Education: Bachelor's and Master's degrees in Economics and Accounting from Wharton, and a law degree from Columbia University
- Marital status: Married + 2
- One more thing: Last February he published "A Boomer’s Guide to Dealing with an Increasing Interest Rate Environment”
