DTC
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DTC - Datatec - Acquisition of Asia-Pacific Network Integrator for $19.8m
Datatec Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1994/005004/06)
ISIN: ZAE000017745
Share Code: DTC
ACQUISITION OF ASIA-PACIFIC NETWORK INTEGRATOR FOR $19.8M
Datatec ("Datatec" or the "Group", JSE and LSE: DTC), the international
information and communications technology (ICT) group, has agreed to acquire
The NetStar Group Holding Ltd ("NetStar"), a leading regional Asia-Pacific
Cisco focused network integrator with operations in Australia, Singapore,
Taiwan, Malaysia, Hong Kong, and mainland China, for $19.8 million in new
Datatec shares. NetStar will become part of the Logicalis Group, Datatec`s
ICT infrastructure solutions and service business.
Acquisition highlights
* NetStar is one of the most established independent providers of network
integration and managed services across the Asia-Pacific region.
* NetStar has a high quality customer base across a wide variety of
verticals including the government, telecommunications, hospitality and
finance verticals. Its network of offices, combined with its primary
network operations centre in Malaysia, allow it to support the needs of
multi-national corporations.
* In one transaction, the acquisition provides Logicalis with:
* a pan Asia-Pacific platform to develop its business by further
acquisitions in the region and to roll-out new services in some of
the world`s most dynamic economies and markets;
* the ability to meet the growing requirement from many multinational
customers to provide them with coverage across the region; and
* a presence in mainland China, the most significant developing
market in the world.
* The acquisition is expected to be earnings and margin enhancing for
Datatec from the outset.*
* NetStar financials:
* forecasts revenues of $70m, EBITDA of $6.5 million and EBIT of $4.3
million for the financial year to 30 June 2010.
* the business has a high level of recurring revenues from annuity
managed services in Australia and Singapore and from Singapore`s
Managed Service offering
* it is cash generative and has stable gross and EBIT margins.
* The issue of new Datatec shares to the vendors of NetStar will require
approval by Datatec shareholders at a General Meeting which will be
convened for 23 December 2009.
Jens Montanana, CEO of Datatec commented:
"This earnings enhancing acquisition of this multinational business, with an
excellent reputation, establishes a sizeable presence for Logicalis across
South East Asia, China and Australia in one move.
"In addition to now being able to provide our customers with wider
international capabilities, NetStar provides the ideal platform for Logicalis
to grow organically and by acquisition across the region."
* This statement should not be interpreted to mean that future earnings per
share and margins of Datatec will necessarily match or exceed Datatec`s
historical published earnings per share or margins.
Datatec Limited (www.datatec.co.za)
Ivan Dittrich - Group Finance Director +27 11 233 1221
Wilna de Villiers - Group Marketing Manager +27 11 233 1013
Jefferies International Limited
Chris Snoxall / Rupert Mitchell +44 (0) 20 7029 8000
College Hill
Adrian Duffield/Jon Davies (UK) +44 (0) 20 7457 2020
Fred Cornet / Hayley Crane (SA) +27 (0) 11 447 3030
Strategic rationale
Logicalis is one of Datatec`s main lines of business and provides ICT
infrastructure solutions and services in the UK, Germany, US and across South
America.
The acquisition of NetStar, in one transaction, provides Logicalis with a pan
Asia-Pacific platform to develop its business and roll-out new services in
some of the world`s most dynamic economies and markets. It also will meet
the growing requirement from many multinational customers to provide them
with local coverage across the region.
Importantly, the acquisition is expected to be earnings and margin enhancing
for Datatec from the outset.
NetStar is one of the most established independent providers of network
integration and managed services across the Asia-Pacific region with
operations in Singapore, Malaysia, Hong Kong, Taiwan, Shanghai and across
Australia.
Previously called Anixter Asia, the business was acquired in 2000 by Barings
Asia Private Equity following an MBO from Anixter, Inc. and renamed NetStar.
Since then the business has steadily grown its revenues, customers, employees
and profitability.
Logicalis has its largest operation in the US with a significant business in
the UK. It has also very successfully developed its business in South
America during the past 10 years and now enjoys a market leading position in
many markets in that region including Brazil and Argentina. In the 12 months
ended February 2009 Logicalis generated revenues of $1 billion and EBITDA of
$57 million.
The acquisition of NetStar is a further step in the development of Logicalis
into an international provider of complex ICT infrastructure solutions, with
a growing emphasis on developing annuity revenue streams, such as managed
services, which drive higher margins and generate better cash flows.
This development into the Asia Pacific region is also the next logical
geographic step in Logicalis` global expansion as it seeks to tap into faster
growth and increasing demand for many of its advanced infrastructure and
managed services solutions in this region. Through an established and
incorporated presence in mainland China, the NetStar acquisition will provide
Logicalis with an entry into the most significant developing market in the
world.
Current market conditions have aided the timing of this transaction. The
Board believes the opportunity for finding meaningful acquisitions at
attractive prices in the IT services space may diminish as markets in this
region begin to recover rapidly.
This acquisition provides Logicalis with a platform for future growth and
leverage in the Asia-Pacific region.
Overview of NetStar
NetStar is a leading regional Asia-Pacific Cisco focused network integrator
with operations in Australia, Singapore, Malaysia, Hong Kong, Taiwan and
mainland China. The Chinese operations are part managed by the Singapore
management team and also from the Taiwan management team (Shanghai and Xiamen
respectively). The Group also has a regional network operations centre
("NOC"), located in Malaysia which serves the entire group. NetStar employs
over 300 people.
NetStar is a multi-country Cisco Gold Partner in the region including
mainland China. NetStar Australia is developing a Virtual Computer
Environment (VCE) data centre solution through Cisco technology with
complementary VMware and EMC offerings. The Singapore business focuses on the
telecommunications sector and provides a Customer Premises Equipment (CPE)
managed service referred to as "infrastructure-as-a-service" for users of its
main telecommunications service provider customers.
NetStar has a high quality customer base and operates across a wide variety
of verticals including the government, telecommunications, hospitality and
finance verticals. NetStar`s multi-country presence across the Asia-Pacific
region combined with its NOC in Malaysia allows it to support the needs of
global and international corporations regionally.
NetStar forecasts revenues of $70m, EBITDA of $6.5 million and EBIT of $4.3
million for its current financial year ending 30 June 2010. The business has
a high level of recurring revenues from annuity managed services. The NetStar
Group is cash generative and has stable gross and EBIT margins. Historical
summary income statement information is provided below.
Unaudited financial results for NetStar for its financial years ended 30 June
2008 and 30 June 2009 together with forecast results for the year ending 30
June 2010 are shown in the table below:
$ million Actual Actual Forecast
FY08 FY09 FY10
Revenue 66.3 64.9 69.6
Gross profit 18.3 17.1 19.7
EBITDA 5.1 5.8 6.5
EBIT 3.5 3.8 4.3
These unaudited figures are provided to give shareholders an indication of
the size and profitability of the NetStar business.
The revenue decreased in FY09 because of poorer market conditions. Current
trading supports the forecasted increase in revenues in FY10. The gross
margin increase from 26% in FY09 to 28% in the FY10 forecast is primarily
driven by a change in the mix of revenues towards services. EBITDA increased
in FY09 as management reacted to global economic pressures by efficiently
cutting overheads. EBITDA growth in FY10 is driven by increased revenues and
economies of scale.
Key acquisition terms and conditions
Under the terms of a share purchase agreement signed on 7 December 2009, the
entire share capital of NetStar will be acquired by Datatec for a
consideration of $19.8 million to be settled by the issue of new Datatec
shares.
Datatec does have considerable cash and financing facilities. However, these
cash resources and financing facilities are largely contained in the regions
where the major operations are currently situated. Logicalis currently does
not have any financing facilities in the Asia Pacific region.
The Board therefore plans to fund Logicalis` initial investment in the Asia
Pacific region via the NetStar acquisition, by an issue of new Datatec
shares. Going forward Logicalis expects to be able to use these regional
assets and cash flows as a borrowing base for future acquisition activity.
Specific authority from shareholders for the issue of new shares is therefore
being sought at a General Meeting of shareholders.
The number of Datatec shares to be issued will be calculated using the
weighted average share price on AIM for the 30 trading days prior to the Date
of Completion which is planned to be 4 January 2010. Datatec intends to
transfer shares in NetStar to Logicalis Group Limited shortly after
completion of the acquisition.
By agreement with the vendors, approximately $3.3 million by value of the new
Datatec shares to be issued will be issued to the management and employees in
full settlement of existing share option scheme commitments. A portion of
the Datatec shares issued to management will be locked-up for a year,
restricting the owners from selling or transferring such shares.
Normal warranties are provided by the vendors in the share purchase agreement
and Datatec has taken out warranty insurance (at the vendors` expense) to
cover such claims as may arise. Warranties include a profit warranty in
relation to the NetStar audited accounts for the year end June 30 2010 which,
if the profit warranty is not met, would result in a repayment to Logicalis
of $2 million to be settled in cash by the vendors.
Completion is subject to a number of conditions precedent including
shareholder approval for the issue of the Datatec shares which is the subject
of Resolution 1 at the General Meeting referred to above. The new ordinary
Datatec shares to be issued will rank pari passu in all respects with the
existing ordinary shares.
Financial effects of the transaction
The financial effects have been prepared for illustrative purposes only and
because of its nature may not fairly present the issuer`s financial position,
changes in equity, results of operations or cash flows. The financial effects
calculation is the responsibility of the Directors. The acquisition would
have had the following effect on Datatec`s underlying earnings per share,
headline earnings per share, net asset value ("NAV") and net tangible asset
value ("NTAV") per share for the six months ended 31 August 2009, based on
the assumptions set out below:
(US cents) Before Pro-Forma %
Acquisition after change
Acquisition
Underlying* Earnings per Share 11.5 11.9 4.2%
Headline Earnings per Share 4.9 5.4 11.6%
NAV per Share 374 374 -
NTAV per Share 162 165 1.9%
* excludes goodwill and intangibles impairment, amortisation of acquired
intangible assets, profit or loss on sale of assets and businesses, fair
value movements on put/call option arrangements and unrealised foreign
exchange movements.
The pro-forma earnings per share, headline earnings per share, NAV and NTAV
have been prepared on the following assumptions:
* figures before the acquisition are the unaudited interim results of
Datatec for the six months ended 31 August 2009;
* 176 million Datatec shares in issue at 31 August 2009;
* the results of NetStar included in the pro-forma after acquisition are
the unaudited results for the six months ended 30 September 2009;
* intangible fixed assets will be recognized on completion and amortised
in accordance with Datatec`s existing accounting policies;
* a tax rate of 20% applicable to NetStar;
* the NAV and NTAV pro-forma assumes the Transaction was concluded with
effect from 31 August 2009 and uses NetStar`s unaudited balance sheet at
30 September 2009.
Sandown
8 December 2009
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 08/12/2009 09:00:07 Produced by the JSE SENS Department.
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