How to profit from privately held firms

Investors can gain exposure to returns of privately held companies. Though, by definition, such companies are not publicly traded, they are often partially or majority owned by public traded holding companies. Nonetheless, investors must be forewarned that private companies do not face the strict reporting standards that public companies do - and as such, are not as transparent.

Individual investors can acquire stakes in private companies, indirectly, through the TASE. What follows is a list of some of Israel's prestigious private companies held by TASE-listed companies.

• Tnuva Food Industries Ltd. - 20% stake held by Mivtach Shamir Holdings Ltd. (TASE:MISH). Tnuva, Israel's largest food company, was acquired in January 2007 by Apax Partners and Mivtach Shamir at a company value of $990 million. Mivtach Shamir's stake is worth $205 million.

  Tnuva has strong growth potential in emerging markets, where demand for fresh dairy products is growing. The company also owns extensive real estate that does not service its core business. The best example is the company's 50% stake in the Tel Aviv wholesale market, which is slated for the luxury "New City" development.

• IDE Technologies Ltd., owned in equal shares by Delek Group Ltd. (TASE: DLEKG) and Israel Corporation (TASE: ILCO) subsidiary Israel Chemicals Ltd. (TASE: ICL). IDE is a global leader in desalination solutions. The company has built 370 facilities in 40 countries worldwide since it was founded in the 1960s.

  The global shortage of drinking water is a huge business potential for IDE, which has a 11% share in its global markets. The company posted NIS 473 million revenue in 2007, up from NIS 324 million in 2006. Market sources say that when calm returns to the financial markets, IDE will hold an IPO on an international market at a company value of at least $500 million.

• Kardan Financial Services BV (KFS), an 80% subsidiary of Kardan NV (TASE: KRNV;AEX:KARD). KFS engages in insurance and real estate in Eastern Europe. The company owns 40% of TBIH Financial Services Group NV, and Austrian giant Wiener Stadtische Allgemeine Versicherung Aktiengesellschaft (WS) (ATX:WST) (Vienna Insurance Group) owns 60%. Through KFS, Kardan owns 90% of TBIF Financial Services BV, which provide banking, mortgage, leasing, asset management, and other services in Eastern Europe.

  KFS has high growth rates across all variables: number of policyholders, premiums, and assets under management. The company is constantly spreading it geographical footprint. Israel Discount Bank (TASE: DSCT) spotted the company's potential and acquired 10% of it for €50 million in September 2007.

• Mashav Ltd. and Taavura Holdings Ltd., 75% owned by IDB Holding Corp. Ltd. (TASE:IDBH) subsidiary Clal Industries and Investments Ltd. (TASE: CII). Mashav owns Nesher Israel Cement Enterprises Ltd., which the Antitrust Authority declared a monopoly in 1989, and other cement makers. Mashav also owned 50% of logistics and haulage firm Taavura, the Israeli franchisee for DAF and Isuzu trucks. Mashav's has a current estimated company value of NIS 3.5 billion, thanks to Israel's building boom.
• Zim Integrated Shipping Services Ltd., 98.3% owned by Israel Corporation. The shipping giant has an estimated company value of NIS 4 billion, although its business is cyclical and influenced by global trade and fuel prices.
• InSightec Image Guided Treatment Ltd., 52% owned by Elbit Medical Imaging Ltd. (Nasdaq: EMITF; TASE: EMIT). Insightec develops breakthrough devices for non-invasive treatment of malignant tumors. The company has obtained US Food and Drug Administration (FDA) approval for the devices and signed reimbursement contracts with insurers, a necessary condition for business success.
• Delek Europe BV, 97.8% indirectly owned by Delek Group. Delek Europe owns 869 gas stations and convenience stores in the Benelux, which it acquired from Chevron Corp. (NYSE:CVX) in August 2007. The company's growth potential lies in upgrading the properties and expanding their retail business. The company is now undertaking due diligence to buy 450 fueling terminals and other properties for €160 million. If the deal is closed, the company will own more than 1,300 gas stations, compared with 950 gas stations in Israel owned by one of its parents, Delek Israel Fuel Corporation Ltd. (TASE: DLKIS).

Although the private companies mentioned here have great potential for creating value and generating profits for their owners, it should be remembered that they are not required to file financial reports, which means that their financial information is neither disclosed nor clear. This fact is reflected in the market caps of the holding companies that own them, which are often traded at discounts on the estimated value of their holdings.

Uri Cohen is chief analyst of Tachlit Investment House Ltd., a wholly owned subsidiary of Discount Bank.

Published by Globes [online], Israel business news - www.globes-online.com - on June 22, 2008

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