BCX shows no signs of slowing down

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When companies are in the process of being acquired by bigger rivals, they tend to lose focus to the point of neglecting their own business strategy. In some extreme cases those in management begin to display less enthusiasm for the work they do. Employees start looking for alternative employment. This situation often results in reduced revenues and profits. By Gugu Lourie

But Business Connexion (BCX), a JSE-listed technology firm, is bucking the trend.

BCX is pursuing its aggressive pan-African growth strategy through targeted mergers and acquisitions, despite being involved in a R2.7bn deal in which Telkom intends to buy the technology firm. The deal is being scrutinised by South Africa’s competition authorities for possible approval.

Management and employees at BCX have remained focused on the task at hand. If the Telkom deal gets the regulator’s nod it will be business as usual for the technology firm.

In the event that the deal is concluded successfully, BCX, which has a market capitalisation of R2.4bn on the JSE, will remain a separate operational entity within the Telkom Group. It will also retain its own branding, key management and operational skills.

On 16 April, the company delivered strong results for the six months to end-February – a feat that can only be
achieved by committed management and diligent staff.

Getting contracts from new clients, improving sales culture and cross selling boosted BCX’s revenue by 16% to R3.6bn.

The South African-based firm – which has operation in Botswana, Kenya, Mozambique, Namibia, Nigeria, Tanzania and Zambia – also posted a 25.7% rise in operating profit to R199.4m.

The firm, which also operates in the UK and Dubai, returned R77.3m in cash to shareholders as an interim dividend.

Presently, SA’s third-largest listed software and computer services, BCX continues its quest for organic and acquisitive growth. It is targeting niche buys in Africa. However, BCX was not providing any details of its possible shopping spree.

BCX, which employs more than 7 000 skilled ICT staff, is positioning itself to play a leading role in the internet of things (IoT) value chain. The IoT is also referred to as machine-to-machine services – a concept of connecting devices – ranging from coffee makers, geysers, refrigerators and smart electricity meters to the internet.

“Our new operating model, combined with a mergers and acquisitions strategy focusing on the rest of Africa and the acquisition of innovative solutions, ensures that BCX is positioned to play a leading role in the ‘internet of things’ and remain relevant,” says BCX CEO Isaac Mophatlane. “BCX will become the enabler of IoT. Cloud, analytics, mobility and security will continue to present new opportunities for the group.”

As part of this strategy to grow on the back of IoT, last month BCX made moves into the retail petroleum
industry through an acquisition of Joint Venture Pump Services Proprietary Limited (JVPS).

JVPS is an industry leader in product supply and support to the petroleum industry in Southern Africa, and the acquisition allows BCX to provide a unique market offering through a single entity for fuel retail services.

JVPS’s comprehensive portfolio includes fuel dispensing equipment, a range of forecourt automation equipment including automated tank gauging and forecourt controllers as well as an environmental management solution for the forecourt.

These elements will allow BCX to provide technology capable of enabling IoT in the petroleum industry.

Furthermore, BCX is also planning to expand its converged cloud services and become an established cloud provider in Africa.

Having made inroads into Africa, the company is positioned for good growth. It already has strategic partnerships with global firms including Argility, Canon, Cisco, EMC, HP, IBM, Microsoft, Northgate Arinso, Oracle and SAP.

Mophatlane said that the firm will continue to look for mergers and acquisitions, and strategic partnerships focusing on niche offerings in new markets and growth in existing markets.

BCX has a strong enough balance sheet to be able to pursue growth across the continent targeting expansion into
adjacent industries as well as IoT.

At the end of February, the company’s non-current liabilities totalled a mere R133.6m, less than 6% of its equity, leaving it with room to acquire additional long-term funding for expansion. (Its overall debt/equity ratio is close to 70%.)

Furthermore, BCX, which is one of the largest black-owned ICT firms in SA, is seeking to strengthen its empowerment credentials.

“We will continuously look at firming our BEE credentials in lieu of the fact that Gadlex [BCX’s empowerment partner] transaction is coming to an end in August,” says Mophatlane.

Telkom deal to make BCX a formidable player

Telkom will reverse integrate Cybernest into BCX once the transaction to buy the technology group is completed,
creating a formidable standalone business.

The Telkom deal has so far cost BCX about R7.7m.

Cybernest, which was founded in 2009, has six fully-fledged data centres, with close to 600 specialised data staff, managing in excess of R2.5bn worth of IT assets. It operates 9 700m2 of data centre space.

In the 2014 financial year, Cybernest generated R347m in revenues, reflecting a 69% rise compared to the same period last year.

“The regulatory approval of the Telkom transaction will mark the beginning of a new chapter for BCX and provide the platform for further strengthening of its offerings and new strategic partnerships,” says Mophatlane.

He adds that BCX is committed to a long-term partnership with a telecoms company or mobile operator.

“We are hoping that Telkom will enable us to execute on that particular strategy.”

If the deal is not given a nod, BCX is likely to remain a possible takeover target because it provides a ready-made Africa strategy for any conglomerate keen to expand into the continent.

 

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