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Digital Logic tries homegrown fund raising

Waterproof computers are the firm's latest offering (Digital Logic)

In an unusual approach to raising capital Digital Logic, a Solothurn -based manufacturer of embedded computer systems, announced that it would sell a block of shares directly to the public.

The ten-year old firm's latest product is a waterproof tablet-style computer that is gaining some attention in the press.

If you've ever looked up a phone number or sent an SMS using one of those heavy duty computers in Swiss telephone booths or bought a train ticket using the touch screen operated machines on the station platform then you are using an embedded PC from Digital Logic.

An embedded computer system is basically anything that is not a mainstream desktop computer. Digital Logic's customers are original equipment manufacturers (OEM), as well as end user organizations. The products can be found in anything from computerised check-out systems at the grocery store to respiratory equipment used in a hospital.

This Swiss company is more than alternative in its market niche within the giant computing sector, it is alternative in its approach to raising capital. It is currently touting its own shares to the general public.

In a normal economy, Digital Logic would be an ideal private placement candidate. It is cash positive, has low capital expenditure, is growing (at 15 per cent a year) without debt and has a turnover of more than SFr20 million a year.

Radical

"It sounds a bit desperate," says Christof Wolfer, partner at Aventic, a UBS captive venture capital fund.

But insiders suggest that it is not just because the Swiss market been bereft of an IPO in two years that Digital Logic is taking a radical approach. It has as much to do with the founder's independent spirit, as it has to do with the economy.

Founder and CEO, Felix Kunz is a strong-minded entrepreneur. He is outspoken about his opinion of professional financiers, having little time for investment banking types or venture capitalists.

Today the major shareholders are "friends and family", as well as the founder. Digital Logic will sell shares directly to high net worth individuals, employees, and its pension fund. The smallest tranche available sells for SFr 8,500. It expects to raise about SFr9 million, according to Kunz.

Investor sentiment

"The strategy of offering shares directly to the public is interesting but with today's investor sentiment it will be hard to place enough shares," suggest Andreas Adam, of Bern Venture Group, a company that sold its one per cent Digital Logic holding a few months ago.

Some private equity professionals think professional investors have deeper pockets and are better able to handle business decisions or critical situations that may emerge in the future. "You're better off working with professional business angels who understand the business world and can provide liquidity," suggests Wolfer.

The private offering precedes a planned listing in 2003 on the Bern Exchange, which does not require an underwriter to launch an offering.

The increase in the number of shareholders should give the stock some liquidity on the bourse once it is listed. The Berne Exchange, which recently went fully electronic, was chosen because a listing on the main stock exchange, the SWX, would have been too expensive, says the company.

Biggest player

As for competition, there are dozens of embedded computing vendors in Europe. According to Digital Logic, Germany-based Kontron is the largest player in the market.

Kontron consolidated its number one position by recently acquiring JumpTec, which had acquired four smaller firms in the previous years. It now has a turnover of SFr60 million compared to Digital Logic's SFr20 million.

At one point in 2001, CEO Kunz had talked of going public on the SWX to fund acquisitions, but according to the company presentation made this week, no acquisitions are now planned. Kunz says he will open subsidiaries, growing organically. About 90 percent of turnover is generated abroad, says the company.

The last time this reporter wrote about a private to public offering, it was 1999 and the beginning of the dotcom boom in this country when NetInvest and swissinvest.com sold millions of francs worth of shares via the Internet and email. Shares that were snapped up at the time by investors in what can only be described as a frenzy.

Valerie Thompson

Digital Logic facts

Digital Logic sells shares without aid of capital markets.
The hardware manufacturer aims to offer 60% of the company to public.
It says an IPO is too expensive to raise the SFr9 million it needs.

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