Analysts believe the acquisition of Datacentrix by Pinnacle is a "complementary fit" and will boost Pinnacle's existing services business and allow it to offer more value to existing clients.
This as Pinnacle yesterday issued a non-binding expression of interest (EOI) to acquire the remainder of shares in Datacentrix that it does not currently own.
Pinnacle presently holds 57.1% of the issued share capital of Datacentrix after a number of moves to up its stake in the business over the past year.
"I certainly think this is a good fit for Pinnacle as they are able to boost their existing services and consulting capacity. The move would also allow Pinnacle to diversify its revenue stream and continue their journey up the value stack," says Richard Hurst, research director at Market Monitor.
"The portfolios are a good complementary fit, especially since this would give Pinnacle a much better footprint in the services space, which is often performing better than hardware sales in the current market conditions," notes IDC research manager for IT services in Africa Jon Tullett.
BMI-TechKnowledge IT sector senior analyst Clinton Jacobs believes having Datacentrix in its group will "greatly elevate Pinnacle's enterprise play" and allow it to become more service-oriented as "hardware is increasingly commoditised and difficult to differentiate".
The consideration payable by Pinnacle to Datacentrix shareholders will be R6.65 per Datacentrix share, to be settled in cash amounting to approximately R541 million.
Yesterday, Datacentrix's shares closed at R6.50 each but this morning the stock was down at R6.30 per share, while Pinnacle's share price was trading at R16.05 at around 11h00 CAT.
"The price is a premium over the current share price, as you'd expect, but it's not unreasonable given the previous stake Pinnacle took," according to Tullett.
Hurst agrees the offer price is "generous".
Datacentrix's stock has risen by almost 37% in the past 12 months, while Pinnacle's share price has grown almost 19% over the past year and over 29% year-to-date.
In the pipeline
Tullett says the planned takeover comes as no surprise because when Pinnacle increased its shareholding in Datacentrix last year, there was a clear intention of completing the acquisition.
"It's been in the pipeline for a while, but Pinnacle's had a challenging year which won't have helped from a timing and share price perspective, but the acquisition will be cash so that shouldn't be an obstacle," he says.
In October 2015, Pinnacle acquired 20 million Datacentrix shares from RMB Securities, pushing its stake in Datacentrix from just under 35% to 45%, saying it intended to further increase its interest in the company. Because Pinnacle's shareholding in Datacentrix had then surpassed 35%, the technology group was required by the Companies Act to offer the remaining Datacentrix ordinary shareholders the same offer as the terms of the RMB deal. In January 2016, it announced it had upped its stake further to own over 55% of the company.
Pinnacle first invested in Datacentrix in 2013 when it bought a 33% stake for just over R237 million. At the time, it said the acquisition would provide Pinnacle the opportunity to grow its own revenue generation from the managed services and business solutions market sector within the ICT industry ? which formed the significant majority of Datacentrix's business.
Pinnacle is one of Africa's largest providers of ICT products and services, and through its subsidiaries it offers hardware and software products, implementation solutions and maintenance services together with structured finance solutions.
Datacentrix is a services-led ICT solution integrator in SA, focusing on the provision of managed services and business solutions.
ICT consolidation
If the buyout is successful, it would mean Datacentrix, which listed on the JSE in 1998, would need to delist from the bourse after it becomes absorbed by already listed Pinnacle.
"Over the years, we have seen a number of IT players exiting the JSE board and while this is a natural consequence of the market developments, one may be saddened to see them go, but hopefully we will have some new shinning lights coming to the boards in the near future," says Hurst.
Tullett says delisting isn't really relevant since Pinnacle is and will remain listed. Jacobs adds the deal continues the current ICT industry trend of consolidation.
"The move into adjacent areas is a good strategic move, one many in the industry are attempting as companies seek growth in a highly competitive, fast maturing and challenging market," says Jacobs.
Pinnacle has already received irrevocable undertakings from Datacentrix shareholders, representing 72% of the offer shares, to support the proposed transaction but it's not done and dusted yet. Shareholders from both companies were warned the expression of interest does not constitute a firm intention by Pinnacle to make an offer and "it is possible that no offer may result from this process".
The deal is still subject to analysis by an independent expert appointed by the Datacentrix board of directors.
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