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ICT's most active year

Mergers, acquisitions, listings and de-listings - it all happened in 2014.

Paul Booth
By Paul Booth
Johannesburg, 08 Dec 2014

There is no doubt 2014 was a tough but healthy year for the ICT industry, with the majority of the financial indicators showing significant growth. There were an unprecedented number of new start-ups, the largest IPO (Alibaba), heavy private equity activity, and a feverish merger/acquisition scene. However, the demise and de-listings of ICT companies in the local market continues to be a major cause for concern going forward, despite many more conglomerates now having a significant and growing ICT portfolio.

In the US, the technology-heavy Nasdaq is at just under the 4 800-level, up over 15% from this time last year, and is the highest it has been for over 14 years and the dotcom boom period of the year 2000. Similarly, the FTSE hit a 14-year high, the Dow and the S&P500 indexes hit new all-time highs recently, and the JSE hit record levels (+/-52 000) in July, and is at present up over 10% since this time last year.

Despite the continuing economic issues, the local ICT industry has seen positive growth during the year, and well above GDP growth levels. Also, from recent surveys by at least one of the major research companies, the majority of IT budgets have either increased or stayed at 2013 levels. Nevertheless, the drive for efficiency and productivity still remains a high priority, with the areas of BI/analytics, disaster recovery and business continuity, governance, and security still very much key focus areas of many organisations.

From a technology perspective, cloud computing and social media, coupled with the move to mobility and the proliferation of devices and the consequential 'big data' issues arising from this, head up a long list of opportunities for the foreseeable future. This includes a move to the digital world and - linked with it - the Internet of things.

In addition, countries are viewing anti-competitive behaviour by vendors seriously and taking the appropriate steps to combat this; while for many companies, the trading and/or protection of patents has become a major and potentially lucrative activity, although this trend is now less prevalent than it was earlier this year. However, another major trend, perhaps unnoticed as such, is the break-up or proposed break-up of major players either into their constituent elements (eg, HP and Symantec) or through the sell-off of units that are no longer pertinent to their future strategic direction (eg, IBM's chip business and its low-end server business; and the tower and directory businesses of the telecommunications giants).

Local scene

This year has been a mixed one for listed ICT companies, as there have been no new listings but some de-listings/suspensions; specifically SecureData, following its acquisition by MB Technologies, Stella Vista and TCS. However, ConvergeNet Holdings has re-invented itself as an investment company, CQ Capital Partners, and is moving its listing to another sector of the JSE early next year, although it will still be a player in the industry; and FoneWorx transferred from AltX to the main board under its new name, Cognition Holdings. In addition, Pinnacle Technology Holdings rebranded as Pinnacle Holdings.

Also important to note is government, in its wisdom, decided to create two ministries to deal with the ICT industry, a move that reflects the 1960s/1970s situation when IT and telecommunications were separate, rather than today's converged world.

However, on a more positive note, there were a number of new entrants and new companies launched into the local market, although some indirectly. These included EntrepreneurCountry; HCL; Nomosphere, part of the French Nomotech Group; Nutanix; and Webroot. In addition, HTC re-opened its local office and Mr Price became an MVNO.

As usual, there was much merger/acquisition and investment activity in the local market, which included Altron or its subsidiaries such as Bytes acquiring several companies; Business Connexion making several African transactions as well as buying the SME division of Argility locally; Datatec, including Westcon, making a handful of buyouts/investments, especially in Europe; Dimension Data, including Internet Solutions, undertaking numerous deals that included ContinuitySA, MWeb Business and various overseas companies; Metrofile in a couple of MEA deals; MTN acquiring Afrihost; T-Systems taking over Intervate; and Vox Telecom buying some IT companies. In addition, Reunert disposed of its Nashua Mobile arm and Adapt IT emerged as a major IT player following several small deals.

Other major events included Telkom making a bid for Business Connexion and MTN for Neotel, both of which are subject to regulatory approval; T-Systems losing the Eskom outsourcing contract; the buyout of Teraco Data Environments by the Permira Group and management; and Net 1 UEPS Technologies fighting over the SASSA contract and its re-tender.

Key appointments during the year included new ministerial appointments and new country managers, GMs, CEOs and MDs at many companies, including BCX, Cisco, Citrix Systems, Cell C, ConvergeNet Holdings, Groupon, MB Technologies, Microsoft, MTN, Naspers, Pinnacle Africa, Reunert, Symantec, Telkom SA, VMware and Westcon. Also, Alan Knott-Craig, CEO of Cell C, stood down due to ill health, and Koos Bekker, CEO of Naspers, stood down due to a sabbatical. Ben Mophatlane, CEO of Business Connexion, passed away suddenly.

From an awards viewpoint, the key winners included Gian Visser, CEO of Afrihost, as the IITPSA's IT Personality of the Year for 2014; and Tshifhiwa Ramuthaga, CIO of the Financial Services Board, as the Visionary CIO. In addition, Ahmed Ismael, director of the Siyafunda Community Technology Centre, received special recognition for service to the community.

African scene

The African scene was again dominated by the telecommunications industry, and in particular, the many new mobile initiatives that have been launched, including mobile banking capabilities and further LTE deployments; and the sell-off by telecommunications companies of their tower infrastructure to entities such as American Tower, Eton Towers and IHS Towers.

As the African market continues to mature, the emergence of potential regional hubs continues apace, with Kenya emerging as the centre for East Africa, and a duel between Ghana and Nigeria for West Africa. North Africa continues to fall under the Middle East/Egypt. As previously, there are still no IT companies listed in the current 'Top 500 Companies in Africa' list from outside SA, and still only a handful of telecommunications companies included.

However, ICT activity on the continent continues to grow, with many new offices being established by companies such as Dimension Data, Nokia, Trend Micro and Vodacom.

Other activities in Africa included IBM opening its mainframe Linux and cloud innovation centre in Nairobi; the sell-off by Essar of its Kenyan assets; Etisalat's acquisition of Maroc Telecom; Africell's buyout of Orange Uganda; Nigeria finally finding a buyer for NITEL/MTEL; and Rwanda switching over to digital TV, the second country in Africa to do so (Tanzania was the first).

In addition, many new regional appointments were made during the year, from companies such as Acer, Bharti Airtel, BT Group, HDS, McAfee, Millicom (Tigo), MTN, Orange, SAP, Seacom, Telkom Kenya, VMware and Vodacom/Vodafone. Carey Eaton, co-founder of One Media Africa, passed away.

International scene

This year has epitomised a healthy, thriving and growing ICT industry with significant consolidations in the security, semiconductor, services, social media and telecommunications markets. In addition, several Chinese companies, such as Alibaba, Baidu, Huawei Technologies, Lenovo, Tencent, Xiaomi and ZTE, are continuing to make their mark globally, and many new names, especially in the mobile space, are emerging.

Ten of the top ICT companies have each been involved with at least five or six acquisitions or major investments. These companies are Alibaba, Apple, EMC, Facebook, Google, IBM, Microsoft, Oracle, Twitter and Yahoo. They included Apple buying Beats ($3 billion); Facebook purchasing WhatsApp for at least $20 billion and Oculus VR for $2 billion; Google acquiring Nest Labs for $3.2 billion and Twitch for $1 billion; Microsoft buying Minecraft for $2.5 billion; Oracle snapping up Micros Systems for $5.3 billion; and Orange acquiring Jazztel for $4.4 billion.

There were several other significant deals, including Altice (France) purchasing SKR for about EUR17 billion and acquiring Oi's Portugal Telecom assets for EUR7.4 billion; AT&T's $48.5 billion acquisition of DirecTV, the number one US satellite TV provider; Zebra Technologies' $3.5 billion acquisition of Motorola Solutions' enterprise business unit; Comcast acquiring Time Warner Cable for $45.2 billion; Gtech purchasing International Games Technology ($4.7 billion); SanDisk buying Fusion-io for $1.1 billion; Level 3 Communications taking over TW Telecom ($5.7 billion); Infineon Technologies acquiring International Rectifier for $3 billion; the Thomas Bravo buyout of Compuware for $2.5 billion; Vista Equity partners buying out Tibco Software for $4.3 billion; Liberty Global buying Ziggo for $6.9 billion; SAP buying Concur for $8.3 billion (SAP's largest acquisition); and Telefonica buying GVT for $4.2 billion.

Other major international activities included the £3.7 billion merger of Carphone Warehouse and Dixons Retail, two of the largest technology retailers in the UK; Atos acquiring Bull (originally the French government's heavily-protected IT 'baby') for EUR620 million, in a move that saw one of the first-ever IT companies finally disappearing; Sony disposing of its PC unit; Lenovo undertaking some of its largest acquisitions with IBM's low-end server business and Motorola Mobility; eBay announcing the spin-off of PayPal; and Cognizant Technology Solutions evolving into a major services player following several medium-sized acquisitions, including TriZetto for $2.7 billion.

On the negative side, there were a number of companies entering either Chapter 11 or similar situations, including GT Advanced Technologies, NII Holdings and Phones 4U (UK).

However, there was significant IPO activity during the year, which included the listings of numerous companies, including Alibaba; Arista Networks; Box; Cyber-Ark Software; GoPro; JD.com; Nimble Storage; Rocket Internet; Samsung SDS, the IT services arm of the Samsung Group; Varonis Systems; and Weibo.

Major international appointments included new CEOs at AMD, F5 Networks, Imperva, Juniper Networks, Microsoft, Mozilla, Nokia, Oracle (Larry Ellison becoming chairman), Polycom, Qualcomm, Sage UK, Sprint and Unisys; and the deaths of John Akers, an ex-CEO of IBM; Glenn Britt, a former CEO of Time Warner Cable; Donald Pels, a telecommunications entrepreneur and benefactor; and Heinz Zemanek, an Austrian computing pioneer who briefly put Austria in the vanguard of European computing in the 1950s, with his 'May Breeze' computer.

During the year, Lenovo firmly established itself as the number one PC company; HP and IBM continue to battle over the number one server slot; while Samsung remains the top ICT company, followed by Apple, Hon Hai Precision Industry, AT&T and Verizon Communications. Additionally, Level 3 Communications was added to the S&P500 index.

2015 and beyond?

The international scene next year looks to be another exciting one, with continued consolidations, particularly within the telecommunications industry, as well as hectic IPO and private equity activity. The splits of HP and Symantec have already been announced, and I expect CSC, EMC/VMware and others to follow suit.

Also, don't be surprised at the demise or acquisition of some global names, including Nuance Communications, T-Mobile USA and Unisys; Google buying out Netflix; the continued pillage of the Israeli technology sector; and the possible acquisition of EE or O2 by the BT Group. In addition, the IPO of Chiel Industries, the holding company of Samsung, should have happened by the end of this year.

Government, in its wisdom, decided to create two ministries to deal with the ICT industry.

In Africa, expect further developments regarding the establishments of regional hubs; more offices being opened on the continent by the 'big boys' as well as South African companies; Botswana Telecommunications' listing on 31 December; and Telkom Egypt disposing of its stake in Vodafone Egypt as part of the conditions of it being awarded a mobile licence.

Locally, the heavy focus will be on the potential rationalisation of the telecommunications sector involving Cell C, Vodacom, Neotel, MTN, Telkom Mobile, Vox Telecom and possibly Orange. In addition, look out for Eskom's new outsourcing partner; the resolution of the SASSA/Net 1 issue; the future of Gijima; a possible de-listing of TCS; and further expansion of ICT interests by many of the conglomerates.

In addition, I expect the government to dispose of its interests in Telkom SA and Vodacom, with some of the funds raised being used to help the Eskom situation.

Conclusion

The ICT industry is very much alive and kicking, despite only growing at a moderate rate in 2014; although I expect this to improve slightly in 2015, with the local market growing at over 6% and Africa as a continent at an even higher rate. There are bound to be some shocks, as nothing is sacred in the ICT industry, so don't be surprised at what may happen, or take anything for granted.

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