strategic management Congatec plans IPO by the end of 2019
The proceeds from the IPO are intended to promote further growth of congatec, for example in America and the Asian-Pacific markets, as well as new product developments.
Jason Carlson, CEO of congatec: "The IPO will enable us to take full advantage of the considerable growth opportunities in the embedded computing market. We are at the beginning of the megatrends Internet of Things and Industry 4.0. With the increasing spread of the IoT and the increasing acceptance of applications such as artificial intelligence and machine learning, the technical complexity will increase at the same time - making exactly this complexity controllable for customers is one of the core competences of congatec as a focused specialist in this field.
The IPO will allow us to acquire additional sales and engineering expertise and resources to take better advantage of this global market opportunity. In addition, the IPO allows us to take advantage of acquisition opportunities that complement our service offering".
congatec at a glance
The Deggendorf-based company, founded in 2004, is a specialist for embedded computing and, according to the company, world market leader in the increasingly important Computer-on-Modules (COMs) segment of the embedded computing market. congatec's COMs are a tailor-made technology infrastructure consisting of hardware and software that forms the core of congatec's customers' end products and enables them to benefit from the advantages of Industry 4.0 and IoT.
The COMs from congatec are used by over 300 customers worldwide in a variety of applications - from industrial robots, medical technology, delivery drones and autonomous vehicles to secure data transfer and the digitalisation of the retail trade. Among the blue-chip customers are Bernecker+Rainer (a subsidiary of ABB Ltd.), Amazon and Bosch Rexroth, General Electric, Google, Rohde & Schwarz, Samsung and Siemens.
congatec has no production facilities of its own
With over 250 employees worldwide, including 80 R&D employees, congatec serves its global customer base through its decentralized R&D model, which enables congatec to meet customer requirements locally and in real time. congatec uses a business model without in-house production, a so-called fabless business model, to focus on its core competencies of engineering and design of COMs. Manufacturing, testing, assembly and delivery to the customer is outsourced to global Tier 1 contract manufacturers such as Plexus under congatec's strict control and quality guidelines. The comprehensive customer service before and after the sale helps the company to be considered by (new) customers for new end products and to expand existing business relationships.
congatec's product portfolio includes SMARC 2.0 modules that are ideally suited for IoT and Industry 4.0 applications, Qseven modules, whose standard was developed by congatec in 2008 and focuses on mobile and IoT applications, and COM Express modules, one of the most scalable COM standards on the market. In 2018, congatec acquired Real-Time Systems GmbH (RTS), thereby expanding its product range with additional software solutions.
The Company's strategy continues to be to operate as a focused specialist provider dedicated to developing leading computer-on-module embedded computing solutions to enable its global customer base to take full advantage of the continued IoT growth. congatec plans to increase its investments in the Americas and Asia-Pacific regions in order to gain additional market share in these fast-growing regions while maintaining and expanding its position as market leader in EMEA.
congatec plays a leading role in the definition and development of new industry standards for all relevant markets. In addition to the continuous improvement of standards, congatec also implements additional proprietary functionalities for its standards-based products. With the acquisition of Real Time Systems GmbH (RTS) in 2018, congatec further strengthened its product range by integrating unique Hyper-Visor software.
The German-speaking market is the most important, followed by the Asia-Pacific region
congatec can look back on a success story of continuous growth and has been profitable for almost 10 consecutive years. Between 2016 and 2018, congatec increased its revenues with an average annual growth rate of approx. 20% and achieved revenues of approx. USD 133 million in 2018 with a simultaneous increase in the adjusted EBITDA margin from 5.5% in 2016 to 9.3% in 2018, which corresponds to USD 12.3 million in 2018 (+30.7% compared to the previous year).
The German-speaking market has always been congatec's most important geographical market due to the company's roots, followed by the Asia-Pacific region. However, through targeted investments in the US business presence, the Americas region achieved average annual revenue growth of 40% between 2016 and 2018 and became congatec's second most important region after EMEA in 2018. In 2018, the EMEA region contributed approx. 70% to sales, followed by the Americas with approx. 16% and Asia-Pacific with approx. 14%.
Diversified blue-chip customer base ensures recurring revenues
congatec has built up a diversified blue-chip customer base that includes leading OEMs such as B&R (a subsidiary of ABB Ltd.), Bosch Rexroth and Siemens as well as General Electric and Samsung. These long-term customer relationships are characterized by a high degree of customer loyalty and growing and recurring revenue potential. In the period 2016 to 2018, this was reflected in an increase in average revenue per customer of approx. 36% based on the ten largest customers.
Similar to software-as-a-service business models, each new design-in increases recurring revenues that are maintained throughout the life of the customer's product. In 2018, approximately 37% of total revenue was the result of winning design-ins from 2016 to 2018, compared to 9% of total revenue in 2016 (for design-ins won in 2016).
Strong financial profile increases the attractiveness as a partner
A design-win from congatec typically has a duration of about five to seven years. Given this long maturity, congatec's solid financial profile is an important incentive for customers to choose embedded computing products from congatec. As of 30 June 2019, the company had no financial debt and a high equity ratio of more than 44%. congatec was consistently profitable, and other key financial figures, including trade receivables, investments and cash, and cash equivalents, are also an indication of a financially reliable business partner.
Overview of the planned IPO
The planned offer on the Frankfurt Stock Exchange (Prime Standard) will consist mainly of newly issued ordinary shares without par value from a capital increase against cash contributions. It will also include a smaller offering of existing shares held by existing shareholders to maximize free float and improve market liquidity after the IPO. The capital increase is expected to amount to approximately EUR 80 million and the offer of existing shares to approximately EUR 10 million. In addition, existing shareholders will make existing shares available under an over-allotment option amounting to 15% of the offer.
The proceeds will be used primarily to accelerate expansion in key growth markets, particularly in the Americas and Asia-Pacific, to drive innovation and finance investments in research and development, to expand software development and the product portfolio, to take strategic sourcing initiatives and to make strategic acquisitions in complementary technology areas, both in software and hardware.
Wolfgang Hanrieder, Chairman of the Supervisory Board of congatec: "The continuing spread of IoT and Industry 4.0 are important drivers of the embedded computing market and especially of our business at congatec, which is driven by the megatrend Edge Computing. The founders, the shareholders of congatec, the management team and not least all our employees have successfully driven the company forward and positioned it as the world market leader for outsourced COM solutions. This IPO will be the next step in congatec's successful growth to further establish itself as an innovation and market leader and to help our customers take advantage of the enormous benefits of these megatrends".
The signatories to the planned IPO are Bryan, Garnier & Co and COMMERZBANK Aktiengesellschaft, which act as Joint Global Coordinators and Joint Bookrunners.
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