Pinnacle Holdings has spent R237.3 million to buy almost 30% of Datacentrix in an off-market deal, in a bid to determine whether there is potential to develop a working relationship in the future.
Pinnacle bought 61.2 million shares, at 388c each, from Coordinated Network Investments and Hoolican Investments, which no longer wanted exposure to a listed company. Datacentrix's shares closed at 390c yesterday, gaining 14.71% on the news on a day the JSE's all-share index closed slightly down.
Pinnacle corporate FD Chris Smyth says Pinnacle made the move because the company is running out of scope to make acquisitions in the distribution sector. He adds that Pinnacle has around 30% to 40% of the market, and is not likely to be allowed to buy out any further distributors.
In addition, expanding north of the Southern African Development Community (SADC) can only be done with caution, and Pinnacle is not yet ready to look at Africa, says Smyth. He said market share growth becomes more difficult as a company gains a greater share of the market and while it will continue to target market growth, it needs to supplement it with acquisitions to maintain the growth rates that shareholders expect.
Buying a stake in Datacentrix gives Pinnacle exposure to the value-added segment, the next step in the IT value chain, says Smyth. He explains that the stake gives Pinnacle room to determine whether it will benefit from a possible relationship. "It makes a lot of sense for us."
Pinnacle says the deal gives it the opportunity to grow its revenue generation from the managed services and business solutions market sector within the ICT industry, which is consistent with its strategy to secure a greater share of the value-added service provision segment in the ICT value chain, and to benefit from the annuity revenues and higher margins associated with this segment of the market.
In the year to February, Datacentrix reported revenue growth of 9%, from R1.758 billion to R1.919 billion. Earnings declined by 15%, from R90.8 million to R77.3 million, and headline earnings per share came in at 39.6c, compared with 46.9c a year ago.
Datacentrix says the past few years, though profitable, have been challenging for the group.
Smyth believes Pinnacle is now Datacentrix's single largest shareholder, although the deal is still subject to conditions. Pinnacle has also been expanding into areas other than ICT, as it views itself as being a specialist in distribution, and not in PCs.
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