Eyal Peso's journey from Tel Aviv apartment to Nasdaq IPO Israeli company Gauzy raised $75 million last month at $319 million valuation (after money) in a Nasdaq IPO. Gauzy, founded in 2009 by CEO Eyal Peso, and CTO Adrian Lofer , developed a technology that enables control of light passing through transparent surfaces, chiefly glass. Shiri Habib-Valdhorn "It's a bright spot when an Israeli company, during a war, goes public on Nasdaq at a time when the US capital market is very selective," Gauzy CEO Eyal Peso (44) told, "Globes." "It says something about the Israeli character, society, workers, and technology, and gives us the confidence that we'll succeed in overcoming any obstacle. There are technological sectors where you can just say the word, and raise $100 million. Life for us is harder, but it's possible to do anything, despite the difficulty."
Were there investors who were enthusiastic about the company but said they wouldn’t invest because you were from Israel?
"Israel is in the headlines for bad reasons right now. They didn't say anything, because Americans are polite, but I'm sure there were investors who 'fell in love' with the property and didn't invest because we come from a war zone. Our political situation has also been very unstable in recent years. I'm sure there are some who are waiting to take a position later.
"We were asked questions about redundancy of production in other countries, and we answered. Just as we were on the road show, there were insane anti-Israel demonstrations on the Columbia University campus - and two blocks away an Israeli company was going public. This is a bigger story than the company itself. Economics is largely psychology, and we succeeded in proving there is faith in Israeli technology and society."
Gauzy -- which is still recording large losses - has a technology that consists of polymers and nanoparticles the company develops, and embeds in glass marketed to the aviation, automotive, and architectural sectors, and is already integrated into serial production. Gauzy's clients includes are multinationals such as Boeing, Airbus, Daimler, and BMW.
The company also develops advanced driver-assistance systems (ADAS) for commercial vehicle drivers. Barclays analysts, who have begun covering the company, estimate that Gauzy’s revenue will grow to $108 million this year, from $78 million in 2023, when it ended the year on a $79.3 million loss.
In the month that has passed since the IPO, Gauzy's share price has fallen by 35%, giving the company a $207 million market cap.
Peso, who currently owns 4.5% of the company's shares, says, "We did the IPO when it was right for the company. The transition from private to public has to be done, you can’t wait for the environment to improve."
"We bought raw materials and started playing"
Peso and co-founder Adrian Lofer (CTO) met when they were both working in development at technology company Alvarion in its heyday. How do two electrical and electronics engineers end up founding a company that develops nanoparticles? "I was always a bit of an entrepreneur, even though I didn't know what the direction would be," says Peso. "I tried to solve a problem in my apartment in Tel Aviv. It was a Bauhaus building that had been renovated, and the architect had decided on frosted glass.
"On Reines Street there are beautiful, huge, 100-year-old ficus trees. I lived on the first floor, and if I opened the window, it was a beautiful sight to see, but anyone could look into my home. I wanted something that could be both transparent and opaque. I saw that there was a very expensive solution, which cost €3,000 per square meter at the time, with no one in Israel to install it. I asked myself, why it is so expensive and inaccessible, and why is frosted glass the only solution? It interested me."
Together with Lofer, he decided to examine the issue. "I wanted a button that could change transparent to opaque, and vice versa. We’re not chemists, but we bought raw materials, started playing around, and realized it was possible to present a much-improved solution that didn't have to be very expensive."
Peso says that Gauzy's solution also relates to their previous area of activity: electronics. "Our product is a kind of capacitor. The materials we are developing are nanoparticles that move and activate an electromagnetic field, like gates that open and close nanometrically." He adds that while Israel is very well known for academic research in nanotechnology, chemistry, and materials engineering, not much industry has come out of it.
Where does the name Gauzy come from ?
"It's a rather esoteric word in English that indicates an intermediate state between transparent and opaque. The first thing we did in the company was to stabilize the material in an intermediate state where, let's say, 50% of light can pass. By the way, every month, ‘The New York Times’ takes an English word, and explains it. By chance, when we were on our road show, they explained the word 'gauzy.'"
Before the IPO, it was estimated that Gauzy would aim for a valuation of about half a billion dollars, but as mentioned, it raised capital at a valuation of "only" $319 million. Barclays has set a target price of $24, more than double today's price, at which the company would have a market cap of about $460 million.
As mentioned, the share price has fallen since the IPO, but Peso is optimistic. "We're not very concerned about the short term. We want anyone who buys Gauzy shares to be satisfied in the long run. We're focused on performance, and nothing has changed since the IPO.
"From what we understand, there has been trading by retail investors, not institutional investors. Also, there's been great pressure on small cap stocks in the last month. Anyone who looks at our business will remain, and I think that, in the end, things will balance out. Obviously, it would have been better for the stock to go up, but I prefer that those who invested in the security and not in the company should get out. Once the market understands our products, and the fact that our technology is fundamental to so many markets, and that we've only just begun, we'll be able to work wonders."
Incentives for green construction in the US and Europe
Gauzy operates through four divisions: architecture, automotive, aviation, and safety-tech. "Our vision is to facilitate light control in an electrical, precise fashion. It's a matter of comfort, but also of energy control, and this is of great importance," Peso explains. "In the construction industry today, a building façade is covered with glass, and the highest energy consumption goes to cooling and heating it. If there is a building in New York, when it's minus 20 degrees outside but the sun is shining, we can allow infrared rays in to heat it, and the opposite in the summer.
"There's important legislation in the US that's also coming to Europe, which offers real tax incentives for green construction. If smart glass is implemented according to certain definitions that we meet, in practice the glass becomes almost free." Gauzy’s technology was chosen for the renovated National Geographic headquarters in Washington DC; in Israel, its technology has been integrated in the new Wix campus, and at Tel Aviv Sourasky Medical Center - Ichilov.
Electric vehicles are generating huge growth for the company's automotive division, says Peso. "Since the batteries take up space below, there's not much headroom, and the roof is made of glass," he explains. "There's no place for anything mechanical in an electric vehicle. The main complaints from passengers are that the sun beats down on them, and Gauzy can solve that." Today, with more and more glass in cars, Gauzy 's technology is being integrated, as mentioned, into vehicles by giants like BMW, and Daimler, and it's believed there will be more clients won in the near future.
Gauzy's aviation division supplies to Boeing, Airbus, and to private aircraft manufacturers. "Aviation is a very small world," Peso says. "Gentex, which is traded on Nasdaq at a market cap of almost $8 billion, produces one model (pf smart windows for airplanes - S.H-V.) for Airbus. An airplane window endures the most difficult conditions, so when you become a technology provider, it's practically impossible to get you out, it’s for the long-term. So, our visibility, looking ahead, is very clear."
For aviation, Gauzy does everything, from developing the material, to production and supply of plane windows, whereas in the other divisions, it is responsible for developing the technology that manufacturers incorporate into their products. Peso likens it to a cake, "In aviation, we prepare not only the cake but also the flour and sugar."
Gauzy 's fourth division deals with safety-tech, where it develops ADAS systems, somewhat similar to those of Mobileye, but for buses and trucks.
How does a smart glass technology company come to develop driver assistance systems?
"The ADAS sector wants to provide the driver with 'more eyes' on the road. Today, we use mirrors. Before the IPO, we bought a French company that, among other things, produces very complex mirrors for commercial vehicles. We realized that mirrors are slowly disappearing from the vehicle, and we developed a system that replaces the mirror with ADAS."
Essentially, instead of rear-view mirrors, the bus has camera systems that inform the driver what is happening around the vehicle. They can warn drivers of disturbances, or calculate the distance from another vehicle. The system costs around $4,000-5,000.
"We're the only ones in the world to convert entire public transportation systems from mirrors to ADAS," says Peso. "Today there are already 3,100 red London buses with this system, which reduces accidents, and also saves fuel and electricity consumption."
"We want to deepen our roots in Israel"
After raising money in the IPO, Peso does not rule out looking for additional companies to acquire, both in Israel and abroad. These include, he notes, companies that produce raw materials that can assist Gauzy in production, or that complement Gauzy products. For example, a company with a CCTV solution that warns if someone other than the driver is approaching a parked vehicle, or a company that can use the large amount of information collected by the system - for example, data indicating accident-prone locations - and provide it to the municipality.
"We're defined as industrial-tech, and relative to our sector, we are considered a fast-growing company, and our multiples are in line with that. An arbitrage has arisen between what we’re worth and low-tech companies that could be important to us, and this could generate phenomenal acquisition opportunities," he says.
In the first quarter you reported a net loss of $18.5 million. and negative EBITDA of $2.8 million. Since we're not in 2021 anymore, investors presumably asked you in the road show about the path to profitability.
"We wouldn't have been able to go public if we weren't close to profitability. Currently, we have one profitable division at the EBITDA level, and we'll reach it soon on the company-wide level. We've shown revenue growth in all activities, we have long-term contracts, our capex is relatively small, and our existing production line still has room to grow."
Where do you see the company in 3-5 years?
"We will continue to be global leaders, and capture more and more share in the major sectors we serve. We want to continue to be a company based in Israel. I would really like to give more employment to people in chemistry and materials engineering, and for there to be an industry built around us. It's hard to take Gauzy and move it to another country, unlike relocating a cyber or AI team that can be moved anywhere within 12 hours of an acquisition. Industrial manufacturers put down roots, and I would be happy to deepen those roots in Israel, and be another source of national pride."
Published by Globes, Israel business news - en.globes.co.il - on July 10, 2024.
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