IPO Report: congatec Holding AG (CONG)

Francis Gaskins |

congatec Holding AG (CONG) is a leader in the design, development and delivery of high-performance embedded computing solutions that enable computing capabilities across a variety of system-level applications and end markets, including industrial automation, medical, entertainment, transportation and test and measurement. The company is based in Deggendorf, Germany.

Seven other companies are scheduled for the week of Nov 16. The full IPO calendar is available at IPO Premium.

SEC Documents

Manager, Joint-managers: Stifel, Needham & Company
Co-managers: Canaccord Genuity, JMP Securities

End of lockup (180 days): Saturday, May 7, 2016
End of 25-day quiet period: Friday, December 4, 2015

CONG scheduled a $60 million IPO with a market capitalization of $203 million at a price range midpoint of $11 for Thursday, November 19, 2015 on Nasdaq.

Summary

CONG is a leader in the design, development and delivery of high-performance embedded computing solutions that enable computing capabilities across a variety of system-level applications and end markets, including industrial automation, medical, entertainment, transportation and test and measurement.

As a technology pioneer in its industry, CONG has grown to become the market share leader in Europe for the computer-on-module, or COM, segment of the embedded computing market, according to CONG’s view of the market and third-party research.

Valuation

Glossary

Retained earnings (mm)

.

.

$12

     

Per share dilution

.

.

-$8.15

     
             

Valuation Ratios

Mrkt Cap (mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

congatec Holding AG (CONG)

$202

2.2

50.6

3.4

3.9

30%

annualizing June 6 mos

       
             

Conclusion

Neutral plus

17% top line growth to $46.5mm for June 6 mos

28% gross profit, meaning not much value added, basically a consulting company

Net income up 110% to 4.3% of rev, but net income is erratic

Price to sales of 2.2

Prce to book of 3.4

P/E of 50.6 seems high based on 17% top line rev growth & erratic net income

Business

CONG is a leader in the design, development and delivery of high-performance embedded computing solutions that enable computing capabilities across a variety of system-level applications and end markets, including industrial automation, medical, entertainment, transportation and test and measurement.

As a technology pioneer in its industry, CONG has grown to become the market share leader in Europe for the computer-on-module, or COM, segment of the embedded computing market, according to CONG’s view of the market and third-party research.

Market

CONG primarily serves the COM and Industrial SBC sub-segments of the outsourced embedded market.

COMs are embedded systems that incorporate the latest processor technology into industry-standard form factors such as COM Express, Qseven, XTX and ETX.

CONGs Industrial SBCs are complete computer modules based on the xITX form factor, built on a single circuit board and that contain various features required of a fully functional computer. VDC Research estimates the COM market will grow from $788 million in 2013 to $1.6 billion in 2018, representing a CAGR of 15% while the outsourced Industrial SBC market, based on the xITX form factor, is estimated to increase from $387 million in 2013 to $839 million in 2018, representing a CAGR of 17%.

Customers

CONG has over 400 customers worldwide in a variety of industries, including our industrial customers such as Bernecker + Rainer, or B&R, Bosch and Siemens, as well as medical customers such as General Electric and Samsung.

CONG maintains close proximity to a broad and diverse customer base through a multi-channel sales strategy that utilizes both direct sales and a global network of independent sales representatives and distributors.

The direct sales force and application engineers are focused on securing design wins by supporting industry-leading original equipment manufacturer, or OEM, and original design manufacturer, or ODM, customers.

CONG’s deep technical expertise, combined with longstanding customer, processor partner and supplier relationships, positions CONG as a trusted provider for industry standard and custom embedded computing solutions.

Fabless Business Model

CONG offers five product families and have shipped more than 1.6 million modules since inception in 2004.

CONG operates under a fabless business model, meaning CONG outsources all of the manufacturing, assembly and testing of products to third parties, enabling CONG to maintain a flexible and capital efficient business model.

Design Participation

CONG’s participation in the design, development and bringing to market of innovative embedded computing solutions has established what CONG believes is a track record of innovation by integrating complex central processing units, or processors, into flexible, high-performance computer modules that reduce its customers' system development costs and design risk as well as provide valuable time-to-market advantages.

CONG’s hardware solutions are overlaid with Basic Input Output System, or BIOS, software that tailors its solutions to specific end-market, application and customer requirements, while delivering benefits such as enhanced data throughput and system security as well as seamless integration within CONG’s customers' products.

Design Focus

CONG’s technology focus over time has evolved to encompass a broad variety of high-performance embedded computing products and solutions.

Within the embedded computing market, CONG provides one of the industry's largest COM portfolios across a range of form factors, or module sizes and shapes, including its COM Express, Qseven, XTX and ETX product families.

CONG further distinguishes ourselves with its recently launched industrial single board computer, or Industrial SBC, product family as well as CONG’s embedded design and manufacturing, or EDM, services, which provide its customers with customized module solutions.

CONG’s engineering-driven sales force guides its customers to select the module best suited to their individual requirements based on technical specifications including size, motherboard specification, power supply and number and type of peripheral ports.

CONG’s experienced engineers focus on improving key metrics such as power consumption, temperature tolerance, processing power and system security in order to help its customers meet their product development goals.

Complete Solution Approach

CONG offers its customers comprehensive services, ranging from procurement assistance to process management and support integrating its modules into their end products.

This complete solution approach and CONG’s relationships with processor partners and suppliers in the embedded computing market have allowed CONG to develop, enhance and expand its product portfolio and consistently offer its customers a competitive advantage.

CONG believes this, along with its broad customer base and market share position, is a strong testament to the established reputation CONG enjoyes in its industry for innovative technology, high-quality products, differentiated technical support, a comprehensive partner network and financial strength.

Headquartered in Germany

CONG is headquartered in Germany and has established a global presence through a network of design and service centers, allowing CONG to provide its customers with local development, implementation and sales support while maintaining a lean and efficient fabless manufacturing model.

Intellectual Property

BIOS Licensing Agreements with AMI

CONG uses BIOS software to tailor and customize its products for many of its customers. CONG licenses BIOS software and have access to underlying source code from AMI.

Under its software licensing agreement with AMI, as amended, CONG has a non-exclusive right to use, distribute and market certain AMI BIOS software for use with and, to the extent necessary, to manufacture, market, distribute and support certain products.

CONG is able to use and modify the AMI BIOS source code under a separate source code access agreement, which, as amended, provides CONG with a non-exclusive right to use, modify and edit certain BIOS source code to develop certain products and provide maintenance support to certain end users. Many of CONG’s customers rely on its ability to modify the BIOS source code to meet their product requirements.

Competition

CONG faces competition in the design of embedded computing solutions from a number of sources globally, including its own customers, many of whom have the ability to design embedded computing solutions in-house utilizing their own internal resources.

CONG also faces competition from a large number of third-party competitors, including ADLink, Advantech, Kontron, MSC Technologies, Portwell, SECO and Technexion.

5% Shareholders Pre-IPO

M&N Holding UG&Co KG          25.8%

congatec Mitarbeiter Treuhand-UG  15.3%

Dr. Steffen Lehmann & Cie. GmbH         13.6%

Heinz Iglhaut     12.1%

Lin Shu Wan      10.8%

Gertraud Iglhaut             9.9%

Technologie Beteiligungsfonds Bayern II GmbH & Co. KG     6.2%         

Dividends

No dividends are planned.

Use of Proceeds

CONG expects to receive $39 million from its IPO and use it for the following:

$31.2 million to expand its operations in the United States and Asia; and

$7.8 million for other general corporate purposes in connection with its growth strategy, including, without limitation, working capital, R&D expenses, selling and marketing expenses, general and administrative expenses and the funding of potential acquisitions.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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