Axiz is for sale after all

JSE-listed Pinnacle Technology Holdings is buying Axiz Technology, in a deal that will create SA's largest channel-focused company.

Pinnacle says it will buy out Axiz's shareholders, which include staff and management, for R170.9 million. This announcement comes about four months after Axiz scuttled rumours of a possible takeover, when it said in April that there was no formal offer on the table.

The JSE-listed company's first cautionary, alerting shareholders to the fact that it was in discussions, was issued on 14 May and reiterated on 23 June. In April, rumours suggested Axiz may be bought out by PostNet parent company OneLogix, or Pinnacle subsidiary Pinnacle Africa.

Axiz has just over 300 staff members, and provides hardware, software and its own brand, Axiz. It resells for several major brands, including LG, HP and Samsung.

Pinnacle offers brands such as Apacer, CA, Canon, Dell, Hewlett-Packard, IBM, Intel, LG, Logitech, McAfee, Microsoft, Modrac, Novell, Samsung, Sony and VMware, along with its own Proline range of ICT equipment.

Axiz CEO Anthony Fitzhenry says the merger will make the combined entity the largest channel-focused company in SA, both in terms of revenue and product range.

Pinnacle and Axiz's competitors include Mustek, which houses Rectron; Tarsus Technologies, which is owned by private company MB Technologies; and Sahara.

Pinnacle has a market capitalisation of R804.5 million, and its nearest listed competitor, Mustek, is valued at R432.7 million, based on its share price and the number of shares in issue.

Fujitsu, Sharp and Samsung were recently added to Pinnacle's portfolio, which will grow its penetration in the data centre, audio-visual and office automation market segments.

Pinnacle CEO Arnold Fourie previously said there are more opportunities to expand into office automation, point-of-sale devices and digital security.

Fitzhenry explains Axiz had reached the point where growing its market share was more costly than the benefits additional customers would bring to the company, as it would have to invest heavily to gain more market share.

The deal gives both organisations access to different brands that were not in their portfolios, and would result in cost savings that will, to some extent, be passed onto the end consumer - driving prices down in the market and growing market share, says Fitzhenry.

In addition, he says, Pinnacle is focused on the top end of the market, while Axiz has been servicing smaller companies, which enables expanded cross-sell opportunities.

Pinnacle subsidiary Workgroup will merge with Axiz once the deal is finalised. Workgroup MD Doug Woolley says, by leveraging a common infrastructure, Workgroup will escalate its product offering into new markets, and Axiz will benefit from the increased solutions expertise.

“Both the Workgroup and Axiz brands are well respected in the market and the two companies have a very close cultural fit,” says Woolley.

He explains that the companies will benefit from an increased product offering, further customer reach, expanded geographical presence in SA and Africa, and a common logistics and warehousing infrastructure.

Fitzhenry adds that Pinnacle now has access to the southern African markets in which Axiz has a presence, and the companies can expand their geographic presence as a result of the broader range of products.

The buyout is subject to Competition Commission approval, and Fitzhenry cannot provide a timeframe as to when the consolidation is expected to be finalised.

However, he does not foresee any issues with the competition authorities, because the companies have two different product sets and SA is “one of the most over-distributed markets in the world” relative to its size.

Paul Booth, independent IT analyst, says the deal is expected to spur other companies in the channel sector to consolidate, either by buying out smaller companies, or looking internally to bolster their business as the market will be tougher as a result of the merger.

Booth says Pinnacle's acquisition of Axiz comes at a time when he is expecting to see market consolidation as companies seek growth opportunities. The deal makes sense for both firms as growth in the market is becoming limited, he adds.