NTT's acquisition of Dimension Data is an excellent move for both companies that may potentially boost competition in the local market, say analysts.
According to a joint announcement, global telecommunications giant Nippon Telegraph and Telephone (NTT) and IT services and solutions provider Dimension Data have reached an agreement on the terms of a cash offer by NTT for the entire issued and to be issued ordinary share capital of DiData.
London- and Johannesburg-listed DiData is being bought for £2.1 billion (R24.2 billion) by the Japan-based telco.
“By leveraging the complementary strengths of both companies, we are confident that we will provide end-to-end, global one-stop and high-quality ICT services,” says Satoshi Miura, president and CEO of NTT.
“Our combined strength will allow us to accelerate execution of our strategies to achieve our shared vision. We have established a strong relationship between the management of Dimension Data and that of NTT.”
Strategy approved
Analysts say the agreement is a positive move for both countries, but the effect for SA may not be as promising.
“From a shareholder perspective it's a great opportunity, but it's quite a loss for SA if we lose Dimension Data. It's definitely a good move for the companies,” says Birgitta Cederstrom, head of ICT Africa at Frost & Sullivan.
However, Denis Smit, MD of telecoms research at BMI-TechKnowledge, says the move won't make much of a difference to SA straight away. “Internet Solutions [IS] will see massive gains in terms of assets. They have a lot to gain but SA won't see any changes straight away.”
He explains that IS will get a lot more opportunities and DiData will now have a telecommunications option, but there won't be much impact on the local market.
“As a strategy, it's sound. All over the world telecommunications companies are integrating with managed services. It makes sense.”
WWW Strategy MD Steven Ambrose says with the explosive growth of telecommunications and ICT all over the world, there has been a skills shortage and this deal helps NTT get a good quality, operational business along with the skills to keep it going.
He adds it's a really smart investment for NTT, and gives DiData a good partner and is excellent for SA. “It's excellent news all round. The whole space is converging and it just makes a lot of sense.”
Absa Investments analyst Chris Gilmour says the move could also raise awareness about investments in the IT sector in general.
Competition clout
Ambrose explains that competition in the local market will be affected positively.
“It will bring massive clout and greater competition to the market. The big players like Vodacom are now moving into Dimension Data's space, whereas before Dimension Data was moving into their space. It's going to up the game for all of them and keep them on their toes. They're going to have to compete harder and smarter.”
He adds that telecommunications and IT structure are a scale business, and companies like DiData have always played on a smaller scale compared to Telkom and other big players. Now with an owner, DiData has all of a sudden become part of multinational telecoms organisation.
“Together, NTT and Dimension Data define a new industry standard for IT service quality, delivery, and support,” says Jeremy Ord, executive chairman of DiData.
“NTT's network carrier capabilities and assets, coupled with Dimension Data's global system integrator expertise, create an incredibly powerful and unprecedented combination of capabilities and skills.
“The combined companies will hold a strong competitive position serving global corporations' moving to managed infrastructure services and cloud computing,” Ord notes.
“NTT is a massive company with huge financial muscle and it may well be able to leverage that here. There are major technological assets coming in from NTT, so it could have a huge competitive-edge here,” comments Gilmour.
All big telecoms players have some kind of a presence in Africa and NTT didn't, so this gives the company a solid footprint in SA and Africa, according to Ambrose.
Gilmour adds that this move could be its springboard into the rest of Africa.
Cloud leaders
“Dimension Data and NTT share the common vision to create new services and values to succeed in the coming age of cloud computing,” says Miura.
Protea Hirschel, ICT analyst at Frost & Sullivan, says this move could help the merged companies attain a leadership position in terms of moving into the cloud.
However, Ambrose says it may be part of their strategy, but in a global context they're not the biggest players and there are other companies already delving into the cloud.
Retaining culture
Smit says the one question that needs to be addressed is that of cultural differences.
“If Dimension Data is going to be run as a separate unit, then it should be alright.”
Ambrose agrees, saying the cultural fit that is required with the integration of a Japanese company is the only small issue that may crop up.
“NTT recognises the value of Dimension Data's entrepreneurial culture and business model; our operational processes, brands, and methodologies will all remain,” explains DiData CEO Brett Dawson.
Related story:
DiData bought out in £2.1bn deal
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