In a move to gain additional funding for its business strategies, Ex Libris recently embarked on an initial public offering (IPO) of stock to raise capital. But late in the process, the company’s board of directors withdrew from the IPO; the aborted effort follows another significant company event—the retirement of Azriel Morag, company founder and longtime chairman of the board.
Following its September 11, 2005, IPO announcement, Ex Libris president/CEO Matti Shem Tov issued this message on October 9:
As a result of a concentrated effort by Ex Libris management and advisers during the last three months, the [company] received an official offer to go public on the AIM stock exchange in the U.K. Both the shareholders and Ex Libris’s management reviewed this offer and felt that the value offered for the [company] to go public was not indicative of Ex Libris’s position as a global leader in library automation and e-resource management. Thus, [Ex Libris] and its shareholders have decided not to accept this proposal from the underwriters for floating Ex Libris on [AIM, the Alternate Investment Market].
Ex Libris will continue as a private company [that] will be fully committed to implementing the vision and plans presented in our recent user group meetings (ICAU, SMUG, NAAUG).
Why the Attempt to Go Public?
Ex Libris embarked on the road toward a public offering so it could move forward on a number of key issues. Even though the IPO wasn’t completed, the reasons given for pursuing it shed light on the company’s business environment.
Primarily, the IPO was a way for Ex Libris to gain funds so it could carry out its aggressive agenda to develop technologies and produce library products. This would include an expansion of its own development efforts as well as strategic acquisitions—buying other companies that offer technologies/products to complement its efforts or that expand its reach into other markets. The IPO would have supplied the company with $US 15 million to support these activities.
In addition, the IPO was planned as an opportunity for owners to recoup at least part of their investments and likely would have gone toward internal realignments. The ownership of the company is divided among multiple investors, including Hebrew University of Jerusalem (HUJ), two venture capital (VC) firms (Walden Israel and Tamar Ventures), and its founders and executives. The owners individually planned to retain a portion of their individual equities in the company through stock ownership, but as a group, they intended to sell $15 million of their interests.
The cancellation of the IPO does not necessarily represent a huge change in the company’s larger strategy, however. Its strong financial position gives it other options for raising capital, such as additional investments from private VC firms or even from borrowing as needed from banks.
The shares were to be offered beginning in October 2005 through AIM, an affiliate of the London Stock Exchange that specializes in small to medium-sized companies. In recent years, there has been a trend for Israeli companies to go public via AIM. Given the relatively small size of the IPO, Ex Libris selected AIM rather than one of the larger stock exchanges. A typical IPO on NASDAQ, for example, would be at least $250 million.
According to figures quoted in the Jerusalem Post, Ex Libris posted revenues of $US 29.7 million in 2004 with profits of $2.5 million. The overall valuation of the company was optimistically projected to be in the $US 90 to 110 million range. The IPO’s termination was largely due to a lower valuation of the company offered by institutions offered stock.
Morag Exits Ex Libris
Azriel Morag’s exit from the company this August represents an even more significant event and also forms a part of the financial picture. As its founder and chairman of the board, Morag’s vision was a major force in the company. His retirement included divestment of his equity and his stepping down from Ex Libris’s board of directors.
With Morag’s departure, the VC firms hold the controlling interest in the company. Walden Israel and Tamar Ventures provided the funds to acquire Morag’s equity; the VC firms now own more than fifty percent of Ex Libris. Ownership and control of companies in the library automation industry by VC firms is not unprecedented. Seaport Capital, for example, owns controlling interest in SirsiDynix.
Ex Libris began in 1980 as an effort to create software to automate the libraries of HUJ. Its software, Automated Library Expandable Program or ALEPH-100, was the genesis of several generations of software to follow, culminating in the current ALEPH 500. The initial version ran on a mainframe system from Control Data Corp., one of the popular computing platforms of the day. The software quickly proved itself and was adopted by other Israeli universities.
In 1983, the success of the effort caught the attention of Yissum, the University’s unit empowered to transfer technologies to commercial enterprises. Yissum hired Morag, a veteran of the software industry in Israel, to lead the company established to commercialize ALEPH; the company was called “Aleph Yissum.”Another company, Ex Libris, Ltd., was formed in 1986 to market and support the software outside of Israel, allowing Aleph Yissum to focus on the software development and to support its use by Israel-based libraries.
In 1995, Yissum Aleph (owned by HUJ) and Ex Libris, Ltd. (owned by Morag) merged, taking the Ex Libris identity. A year later, the company was reorganized as Ex Libris Group, which stood as the parent company for a growing number of subsidiaries and distributors around the globe. In July 1997, Ex Libris acquired the German company Dabis, which had a three hundred-library customer base using its BIS system.
In 1999, two Israel-based VC firms, Walden Israel and Tamar Ventures, invested a total of $4 million in the company. This investment provided the two firms seats on the Ex Libris board of directors.
Ex Libris entered the U.S./Canadian market in full force in 1999, finding an eager slate of large academic libraries ready to cast off outdated legacy systems. Sales through about 2004 were strong for its ALEPH 500 library automation system; Ex Libris captured 21 of the prestigious group of 123 member libraries of the Association of Research Libraries. About 40 percent of its revenues currently come from U.S.-client libraries.
Current Product Picture
In the last two years, ALEPH 500’s North American sales have slowed somewhat, reflecting the fact that most of the largest libraries (that require such sophisticated systems) are now running modern systems. Ex Libris, however, continues to report major international contracts.
Ex Libris’s non-ILS products continue to garner impressive sales too. SFX is the dominant link server for academic libraries, and MetaLib is gaining ground in the metasearch arena. Verde (in general release as of September 2005), the company’s electronic resource management (ERM) system, has a large-market potential, especially among libraries running the SFX link server or ALEPH 500. DigiTool, its offering for creating digital library collections, plays within a smaller market niche.
Almost all academic libraries require link-resolver and metasearch products—in order to provide users with better means to access their ever-growing collections of licensed electronic content—and ERM products to manage electronic content more efficiently. In addition, an increasing number of libraries are involved in creating their own digital content.
Ex Libris has enjoyed great success selling add-on products to libraries that run competing ILS products. Ex Libris designed SFX, MetaLib, Verde, and DigiTool to operate with any ILS, giving no special favor to its own ALEPH system. This strategy gives Ex Libris broad exposure as a technology provider for academic and research libraries.