Adapt IT plans to expand its presence in East Africa over the next year, possibly with an acquisition.
"We are now looking into the East Africa region, in particular the much more mature market of Kenya, in order for us to cover that region because we are seeing demand there," Adapt IT CEO Sbu Shabalala told ITWeb in an interview.
Kenya is the target market in the area because Adapt IT sees it as the most mature IT market in the region.
"We sell into that market, our guys fly in to sell, but it would help to have a local presence to coordinate those efforts and understand that market better. Because of the differentiation of our software, it is easy for us to sell into those markets, but what we really want to address is the local supportability and local presence for our clients which will enhance the value proposition.
"Over the years, we have understood that to get into a new market, we must consider acquisitions, because they fast-track your entry. If you have to start from scratch, it's a 10-year effort so if we can fast-track that, one way or another, we believe it adds a lot of advantage," Shabalala explains.
This is in line with Adapt IT's longstanding strategy of acquisitive growth. This strategy saw the JSE-listed company yesterday report turnover growth of 25% for the year ended 30 June, to R993.7 million. Of this, acquisitive growth made up 19%, while organic growth was 6%.
"Our strategy has been to increase our sales efforts into the rest of the Africa market; it is now sitting at 14% and we expect that to grow. We are also looking to the rest of the world, so part of the consolidation that we are going to do in this financial year is to look to augment our Africa presence together with accelerating our international growth," Shabalala says.
Adapt IT still derives 76% of its turnover from the South African market, with just 24% coming from its international businesses. Turnover from SA was almost R760 million for the last year, while turnover from 26 different African countries outside of SA added around R138 million. The group also operates on every other continent and has international offices in Mauritius, Botswana, Ireland, Australia and New Zealand.
Commercial director Tiffany Dunsdon says the group aims to grow to 30% foreign revenue by 2020.
"We want to increase the mix of foreign revenue, without a doubt. We have seen that our shareholders value that sustainability hedge against the rand and against the political and economic circumstances of this market.
"Having said that, we've got a compelling case in SA for acquisition; with our transformation status and with our listed status, we are a compelling acquirer in SA. But in terms of shifting our mix over the next while, we feel 30% is the minimum that we would be comfortable with by 2020," she says.
The company's last few acquisitions have been local, which is also shifting the mix more towards SA, so Dunsdon says the group needs to counteract that with more international acquisitions.
Adapt IT is a provider of specialised software solutions and services to the education, manufacturing, energy and financial services sectors, and has now added the hospitality sector to its portfolio through the recent acquisition of Micros South Africa for R120 million.
Shabalala says the group aims to increase annualised turnover to R3 billion by 2020.
"We are sitting at over a billion annualised turnover at the moment and that excludes any contribution from Micros. We spent R120 million on that acquisition last year but the Competition Commission approval only came through in July, so it will only be consolidated in this coming financial year. So that, together with what we already have annualised, we believe we can certainly grow at a much more rapid rate.
"We believe that target is realistic. We are a listed business and we have grown at a compound annual rate of 35% over the last five years, so we believe it's achievable."
Acquisition strategy
Dunsdon says the group is still seeing plenty of pipeline ahead for acquisitions, with some in the works already.
"The pipeline is good, because obviously we are not limited to SA and the pipeline therefore is not limited by geography or vertical. But what we are doing is applying our criteria quite strictly to make sure the attributes of the businesses we are buying are the things that we know really work in our business - ownership of IP, software-as-a-service and in verticals that we understand," she told ITWeb.
She says all of Adapt IT's divisions are charged with identifying good, complementary acquisitions in their verticals - "great little software companies that compete in their verticals".
"But at the centre we are obviously looking at where the big spend is in IT, and telecoms and financial services are two of the top ones, but we are not looking exclusively in those ones. It depends on the companies that we come across and the attributes of cloud software-as-a-service and the differentiation from what is in the market. So if it's not commoditised, that is really the attribute we are looking for."
Dunsdon says when looking for offshore acquisitions, the company looks to stay in verticals that it already knows and understands.
"In SA we have been adding new verticals and Micros is a case and point where [hospitality] is a whole new vertical for us. So once we understand a vertical, we are happy to go elsewhere and take our solutions elsewhere into that market but stay in niches that we know and understand," Dunsdon adds.
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