Dimension Data has accepted a modest but adequate cash offer of £2.1 billion, $3.2 billion, or R24.2 billion (depending on where you live) for the company's entire ordinary share capital. This is the culmination of many years of hard work on the part of Brett Dawson.
It was Dawson who turned around the bleeding mess that was Proxicom, the company's US operation. After being appointed as group CEO in March 2004, he slowly, like a damaged oil tanker, turned the ship around while making hazardous repairs at sea.
Around the time of his appointment, I had been closely following the company, and was notoriously sceptical of the promises of a turnaround that executives offered.
Looking back, my column in Brainstorm in October 2003 (Buy DiData? Why? http://www.brainstormmag.co.za/index.php?option=com_content&view=article&id=1524&Itemid=89) still seems a fair assessment of what Dawson inherited. What the company considered to be hostility on my part paled against the anger of shareholders who saw a once-mighty share not only hovering persistently at all-time lows, but also under-performing its FTSE index by a considerable margin.
The core of the criticisms was two-fold. First, the company's aggressive international expansion was fraught with danger. While some regions, such as the UK and Australia, showed good returns, others, such as the acquisition of Proxicom, achieved by heavily outbidding Compaq, proved to be unmitigated disasters. They were symptomatic of the hubris of South African executives, many of whom have discovered painfully that being a big fish in a small pond does not qualify you to fight with the United Sharks of America. Several equity analysts I spoke to at the time shared my view that the company would have done better had it limited its expansionary ambitions at other emerging markets, such as India and Brazil.
Second, the company had been telling grand stories about "value-added services" and "turnkey solutions", when in reality it was little more than a large box-dropper for vendors such as Cisco. In the distribution business, low margins are acceptable. In services, not so much. Selling a company as a services business when you're showing the margins of a distributor, did not sit well with investors.
And so Brett Dawson took over. Although he impressed everyone he met with his grasp of the market, his recognition of the company's challenges, and his vision of how to proceed, he was young and lacked experience in the big league. As a replacement for the gung-ho entrepreneurialism of founder (and still chairman) Jeremy Ord, the choice was not obvious to outsiders. It seemed prudent to adopt a wait-and-see attitude, while wishing him well.
The acquisition by NTT marks the culmination of a long, hard slog.
Ivo Vegter, contributor, ITWeb
His achievement at turning the bleeding US operation around stood out, however. After Dimension Data bought it at the height of the bubble, brashly elbowing aside bigger rivals, the job of turning the company's most expensive mistake around had been thought impossible. Yet here was a man who, through ruthless cost-cutting and exacting management, had succeeded. If he could do that, then what price his success at the helm of the group as a whole?
Quietly, with none of the strutting pride the company's executives exhibited before, he set about the job, stemming losses, cutting costs, growing revenue, and changing the sales mix from heavily product-oriented to more solution-driven. Services as a share of revenue kept growing, and today, the company successfully manages networks worth $12.5 billion for some 10 000 clients across five major geographical regions.
The record speaks for itself. Operating margins, which were negative in 2003, inexorably increased to 5% at the last interims. Gross margins sit comfortably above 21%. Revenue kept growing year-on-year, to double 2003 levels. The only exception was a dip last year, attributable to the temporary effect of the global economic crisis. The loss of almost half a billion dollars of 2003 had turned to profit by 2005, and has grown consistently ever since. The share traded at around R10 before the announcement of the sale to NTT, and any investor who bought the company at any time since 2003 is (albeit modestly) in the black.
This isn't to say all is rosy. Periodic tales continue to emerge from within the organisation of a single-minded sales focus and a crude frat-boy culture, rather than the mature IT services partner customers would no doubt prefer it to be. The company's over-reliance for its profit on the Internet Solutions division has always been a matter of speculation and concern. Its recovery may have been miraculous, but on its own, its modest performance has always required persistent effort to sustain complex service deals when high-volume product sales are so much easier. The modest sale price appears to recognise this.
The acquisition by NTT, however, marks the culmination of a long, hard slog. In its statement announcing the deal, NTT recognises Dimension Data's systems integration capabilities, rather than its strong Cisco channel. That alone must be music to the ears of long-suffering DiData executives.
The directors, management, and indeed the staff of Dimension Data deserve congratulations for pulling their damaged ship off the rocks, repairing it at sea, and bringing it safely to port. For Brett Dawson in particular, as the captain of that ship, today is a day of vindication. Enjoy the victory.
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