BEE snuffs out Lightedge

Paul Vecchiatto
By Paul Vecchiatto, ITWeb Cape Town correspondent
Johannesburg, 14 Feb 2008

Lightedge Technologies director David Musikanth blames the company's failure on its inability to score sufficiently well on broad-based black economic empowerment (BBBEE) criteria as a major contributing factor.

Yesterday, the Cape High Court placed the Cape Town-based technology distributor in liquidation, following an application by one of its suppliers for non-payment. This is an especially hard blow for the 15-year-old company, its 250 staff located in various offices around the country, and its BEE partners Red Magic, as - until two years ago - the business was on the up.

"Even with 40% of our shareholding in black hands (Red Magic), we could only be classified as a Level 7 BEE company, when ideally we should have been a Level 4 company," Musikanth says.

According to the BEE requirements established by the Department of Trade and Industry, a Level 4 contributor rates 100% in terms of the points scored for ownership and staff equity. This means a client can then recognise that for every R1 spent with the rated company, the equivalent amount is recognised as BEE compliant.

A Level 7 contributor, according to the codes, will only score 50%, which means that, at best, only half the money spent with them is recognised as contributing to BEE.

Musikanth says despite having established a good reputation in the market and having achieved all the required IT credentials it needed, major customers started to drop their spending with the company as it did not bolster their BBBEE ratings.

"For almost four years we searched hard to find the right BEE partners, particularly somebody we felt comfortable with," Musikanth says. "Eventually, we connected with Red Magic and the two of us fitted very well. Unfortunately, it was too little too late."

Lightedge Technologies and Red Magic cut a deal towards the end of last year for the former to take a 40% stake without having to pay for any equity, but on the understanding that they would help contribute R30 million to sales over the next two years.

"What happened was not Red Magic's fault. They have hardly been able to get off the ground," Musikanth says.

Red Magic Holdings is a BEE firm with interests in mining, technology and tourism.

Obbey Mabema, Red Magic's marketing director, says: "Lightedge is our kind of company. We were very comfortable in getting involved with them and working with them."

Mabema says he has not yet been officially informed of the court's decision and, if it was true, he would be devastated to see this happen to Lightedge.

"I most certainly don't want to see Lightedge fail," he says.