While the software and computer services sector of the JSE shrinks everyday – owing to technology firms voluntarily delisting or being gobbled up by bigger rivals – prolific technology dealmaker Sbu Shabalala somehow keeps creating value for shareholders. By Gugu Lourie
Shabalala’s latest foray into the world of auditing and accounting saw him spend about R217m buying CQS Investment, which has footprints in Nigeria, Kenya, Zambia, Tanzania, Botswana and Zimbabwe.
Founder and CEO of Adapt IT, Shabalala, believes his latest buy is a direct fit in the company’s acquisition strategy of buying niche businesses.
Soft spoken, Shabalala, laughed at my assertion – after the JSE announced the deal – that a prolific technology dealmaker had struck a big one again.
“I think having been consistent, the market always seems to expect some consistency from Adapt IT,” said Shabalala.
“It is our stated intention to continuously make these acquisitions, where it make sense particularly where we can add a lot of value to Adapt IT.”
The R1.4bn Durban-based technology firm, which had a market value of about R900m in November last year, continues to attract investors on the JSE.
The stock has seen its share price rise more than 33% year-to-date and spiking close to 2000% in the past five years.
The company, which provides business intelligence consulting to South Africa’s big four banks – Absa, FNB, Nedbank and Standard Bank – has benefitted from organic growth and from its acquisitive strategy.
The share price is not likely to plateau anytime soon if the words of Shabalala and Adapt IT financial director Tiffany Dunsdon are anything to go by.
The company seems to be hungrier for more acquisitions, pushed by its strong balance sheet and seamless integration of new buys.
Asked if the Adapt IT would continue to buy more earnings enhancing firms, Dunsdon said: “We are cash generative and so are the companies that are joining us. We do have borrowings … we can also use equity if required to buy more firms.”
Shabalala said Adapt IT shareholders should expect it to continue with its growth strategy.
“We will continue to seek opportunities both organically as well as acquisitions,” said Shabalala.
He added that the technology firm was looking at strengthening its financial services capability through acquisitions. Adapt IT bought an auditing firm in the financial services space.
“We are also looking at diversifying into the rest of the African market. That’s what we are looking for,” said Shabalala.
The South African-based firm has recently acquired a New Zealand-based software firm, Student Management Software Solutions Limited (SMSS), to bulk-up its profitable education software portfolio.
In the year to end-June 2014, Adapt IT invested R100m in the oil and gas industries after acquiring Aquilon group of companies. The acquisition gives the tech firm a stronger presence in the energy sector.
Adapt IT also made a play for cloud telecommunications intelligence and management solutions market after buying AspiviaUnison for R200m.
“We are quite happy in getting quality earnings enhancing acquisitions for our shareholders,” Shabalala said, adding that that the company was not complacent after buying CQS.
“We are looking to continue on the growth trajectory that we are on.”
Meanwhile, Adapt IT’s rival EOH is also continuing with its acquisitive drive.
The tech company announced on Monday that it had bought Mehleketo Resourcing, a turn-key rail automation and technology solutions firm, which generates about R300m in revenues.
“It’s very exciting to have Mehleketo join the EOH family. They will take us to new places and markets, which are strategic to EOH’s growth plans,”said EOH CEO Asher Bohbot.
But the sector seems to be more exciting as JSE-listed technology hardware and equipment maker Pinnacle Holdings seeks to buyout minorities in software and computer services firm Datacentrix.
On 15 October 2015, Pinnacle made a mandatory offer to acquire the shares in Datacentrix it doesn’t already own. It made the offer after buying 20m Datacenbtrix shares from RMB Securities.
The IT firm now owns 45% of Datacentrix, up from 35%.
If Pinnacle manages to convince minorities of Datacentrix to sell then it is likely that the software and computer services sector of the JSE will be left with five listed companies.
This index has recently lost Gijima through voluntary delisting and Business Connexion, which was bought by Telkom, South Africa’s fixed-line telephone group.
An analyst who asked not to be named said: “The growth trajectory of Adapt IT is likely to entice private equity buyers looking for great buys and exposure to the African market. What will fast-tack the process is the fact that Adapt IT is making a killing in targeting niche markets”.