Kontron yesterday announced that it will acquire the Cellular Automotive Module
Unit from US company Telit Cinterion in an asset deal. The unit generates approx.
100m sales per year at a c. 5% EBITDA margin. The purchase price of 24.5m
will be paid fully in cash, and is well covered by 438m of gross cash on hand as of
Q123. Closing is expected for August. Insights:
The acquired business sells connectivity modules for automotive applications,
used e.g. for real-time data collection. Customers are automotive OEMs and Tier1 suppliers. The unit is ex Siemens, based in Berlin and employs some 100
specialist engineers. It should have been a more or less neglected part of Telit.
Kontrons management has shown in the past that they are experts in
accelerating growth and improving profitability of such special situation
companies.
With the deal, Kontron will in-source key connectivity technology and
complement its product portfolio in the field of 5G / IoT. So far, Kontron had
to source the modules from third-party suppliers such as Sierra Wireless (eHAIB).
Kontron will bundle and cross-sell the modules into industrial and transportation
markets, expanding the total addressable market and raising profitability, as
verticals outside of automotive should allow for stronger pricing.
The deal looks value-accretive: Kontron will pay 24.5m for c. 5m annual
EBITDA (5% margins), which indicates a cash flow return on the EV in excess of
10% pre-synergies, even when conservatively assuming up to 2.5m annual
maintenance capex. Managements aim is to get the targets margin up to 10%
within 12 months through growth and cost synergies e.g. contract manufacturing
can be shifted from the current suppliers to Ennoconn, which should result in lower
production costs per unit.
Action: We incorporate the acquired business from 08/23, assuming 40m of sales
and 2m of EBITDA for the remainder of the year. From 2024E, we account for the
full 100m sales / 5m EBITDA, conservatively not including the targeted
synergies. Remains a Buy with a new PT of 30.00 (old: 29.50), based on DCF.
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