IPO Report: CDW Corp.

Based in Vernon Hills, IL, CDW Corp (CDW) scheduled a $600 million IPO with a market capitalization of $3.6 billion, at a price range mid-point of $21.50 for Thursday, June 27, 2013.

10 POs are scheduled for the week of June 24th. The full IPO calendar is at IPOpremium.  Trial and paid & trial subscribers get early, complete financial analysis.

S-1 filed June 14, 2013

Manager, Joint Managers:  J.P. Morgan; Barclays; Goldman

Co-Managers:  Deutsche; Morgan; Baird; BofA Merrill; Raymond James; William Blair; Needham; Stifel; Loop Capital; Williams Capital

Recommendation

CDW appears to be priced a little high, give the valuation comparisons.  A negative is the 4% revenue growth for Q1 ’13 vs Q1 ’12.  The rating is neutral.

Summary

As a systems integrator, CDW supplies software and hardware to a  large customer base.  Gross margins are very low, 17%, which suggests there is not a lot of ‘value-add’ in their offerings.

Revenue was up only 4% for Q1 ’13 vs Q1 ’12 to $2.4 billion.  Based on pro formas earnings can’t be compared.

Valuation

Glossary

Valuation comparisons

Price-to-sales:  CDW is tied with SMCI for the lowest
Price-to-earnings:  CDW is in range
Price-to-book:  CDW is the highest except for ACN
Gross margins:  CDW is about the same as SMCI, which indicates not a lot of value add
Price-to-tangible book:  only CDW has a negative ratio, because it’s been cash stripped by private equity owners

Recommendation

CDW appears to be priced a little hgh, give the valuation comparisons.  A negative is the 4% revenue growth for Q1 ’13 vs Q1 ’12.  The rating is neutral. 

Business

CDW is a Fortune 500 company and a leading provider of integrated information technology (“IT”) solutions in the U.S. and Canada.

CDW helps its customer base of more than 250,000 small, medium and large business, government, education and healthcare customers by delivering critical solutions to their increasingly complex IT needs.

CDW’s broad array of offerings range from discrete hardware and software products to integrated IT solutions such as mobility, security, data center optimization, cloud computing, virtualization and collaboration.

CDW is technology “agnostic,” with a product portfolio that includes more than 100,000 products from more than 1,000 brands. Products and solutions are provided through a sales force and service delivery teams consisting of more than 4,300 coworkers, including over 1,700 field sellers, highly skilled technology specialists and advanced service delivery engineers.

Growth rate 

From 2002 to 2012, CDW grew net sales at a compound annual growth rate of 9.0%, while U.S. IT spending and U.S. real GDP grew at CAGRs of only 4.3% and 1.6%, respectively, according to International Data Corporation and the Bureau of Economic Analysis, respectively.

However, CDW grew top line revenue only 5% for 2012 vs 2011, and only 4% for Q1 ’13 vs Q1 ’12.

Addressable market 

CDW believes the addressable market is $200 billion and CDW has 5% of that market.

From 2002 to 2012, CDW grew net sales at a compound annual growth rate of 9.0%, while U.S. IT spending and U.S. real GDP grew at CAGRs of only 4.3% and 1.6%, respectively, according to International Data Corporation and the Bureau of Economic Analysis, respectively.

System Integrator

CDW is a leading U.S. sales channel partner for many original equipment manufacturers (“OEMs”) and software publishers. 

CDW’s multi-brand offering approach enables them to identify the products or combination of products that best address each customer’s specific organizational IT requirements and to evolve offerings as new technologies develop.

IDC estimates that 59% of U.S. IT revenues are generated through indirect channels, including value-added resellers (“VARs”), retailers and e-tailers, rather than the direct sales forces of OEMs and software publishers. We purchase products directly from vendor partners, as well as from wholesale distributors, for resale to customers or for inclusion in the solutions offered.

Wholesale distributors, such as Arrow, Avnet, Ingram Micro, SYNNEX and Tech Data, provide logistics management and supply-chain services for CDW and vendor partners but, unlike CDW, typically do not have relationships with end-users in the U.S

Competition 

• resellers, such as Dimension Data, ePlus, Insight Enterprises, PC Connection, PCM, Presidio, Softchoice, World Wide Technology, and many smaller resellers;

• manufacturers who sell directly to customers, such as Dell, Hewlett-Packard and Apple; 

• e-tailers, such as Amazon, Newegg, TigerDirect.com and Buy.com;

• large service providers and system integrators, such as IBM, Accenture, Hewlett-Packard and Dell; and

• retailers (including their e-commerce activities), such as Staples, Office Depot and Office Max.

Dividend Policy

Post IPO CDE expects to pay a quarterly cash dividend of $0.05375, or $0.215 per annum.  At the price range mid-point of $21.50 that’s a 1% yield.

5% shareholders pre-IPO

Madison Dearborn, 45.9%

Providence Equity, 40.6%

Use of proceeds

20% of CDW’s IPO goes to sellling shareholders.

CDS expects to net $467  million from its IPO.  Proceeds are allocated to repay debt and to pay a $24 million management termination fee to the equity sponsors.