CEO at Kontron
S&T Group has experienced steady profitable growth over the last decade. The company was growing constantly for the last 10 years due to well-informed and progressive management decisions and important strategic acquisitions that have helped the company complete its transition to a full-service IoT player.
Starting in 2008, S&T was a provider of classic IT hardware products under the brands chiliGREEN, Proworx and Maxdata. By the mid-2010s, our dealings with low-margin IT hardware products were discontinued. The drivers behind S&T Group’s transformation include the continuous expansion of embedded hardware and software in vertical markets, the development of a range of “IoT as a Service” packages operated with service level agreements, and the step-by-step expansion and intensification of service skills in the IT services segment towards IoT.
In S&T Group’s mid-term “Agenda 2023” and recently published long-term “Vision 2030”, we foresee further organic growth accompanied by inorganic growth through acquisitions. With mergers and acquisitions (M&A) being one of S&T’s core competences, we calculate that approximately 50% of our future growth will be organic and the other 50% achieved through M&A. We have overseen the successful integration and restructuring of several companies within the group, and we continue to use this in-depth knowledge to proactively identify and leverage potential synergies with viable targets. Comprised of legal, finance and technology experts, our strong internal M&A team can conduct the due diligence process seamlessly to ensure swift and informed decision-making.
Company transformation through strategic acquisitions
One of the most important mergers in S&T Group’s history was the acquisition of Kontron AG at the end of 2016, that saw the company enter the market as a provider of Internet of Things (IoT) and Industry 4.0 solutions. The merger combined S&T’s IT services, software and security solutions knowledge with Kontron’s experience in embedded and industrial computing technologies. This solution offering is both rare and in high demand in the era of the Internet of Things and Industry 4.0.
Subsequently, S&T Group’s broad portfolio of proprietary technologies has been further strengthened by the development of its own research and development projects and its strategic acquisitions across Europe. This includes two recent acquisitions of German-based AIS Automation GmbH in 2019 and Slovenia-based Iskratel in 2020 to comprehensively expand our software offering and expertise in the field of industrial automation and 5G respectively.
Identifying M&A targets
S&T Group has acquired EUR 550 million in revenues in the last decade and plans to grow further by approximately 7% per year by M&A. The company has access to sufficient liquid funds, unused credit lines, treasury shares and a strong cash flow to support for further acquisitions. As we continue to identify prospective targets, we identify restructuring situations that can be acquired at a low valuation such as 40% of its revenue or less. While the prospective acquisition might be dilutive in year one, our target is to achieve 10% EBITDA after the following 24 months.
S&T implemented a M&A light process in 2021, that is characterized by a swift and full integration or merger of the acquired company, with revenue volumes of up to EUR 10 million at low transaction costs. The integration or merger will be overseen by an experienced S&T manager from our dedicated team of internal interim managers, therefore ensuring that synergies can be leveraged quickly and seamlessly. The acquisition of Axino in March this year was a great example of our M&A light process in action, and it has allowed us to react efficiently to interesting acquisition opportunities. We will achieve positive earnings with Axino this year and continue to strengthen our presence in Germany with its 50 experienced technicians.
In terms of assessing and proceeding with potential acquisitions, on average we analyze four to five targets per month, and usually have about ten concrete targets in the pipeline. Our presence continues to grow with the acquisition of European companies, particularly in the software sector and this represents an exciting opportunity to build our engineering capacity on a larger scale.
The future is bright for S&T Group. Our high liquidity of around EUR 278 million allows us to continue investing in the development of leading (I)IoT technologies and make synergetic acquisitions. Particularly in times of crisis, a high cash balance provides us with sufficient financial freedom and flexibility. Despite the recovery of the stock market, we see further good opportunities for attractive acquisitions of non-listed companies.
S&T Group focuses on acquiring companies that own proprietary technologies and solutions for industrial automation, medical technology, communications and public transport markets – and, if we consider it a viable option, also for the IT Services area.