Blue Label on the hunt

By Nicola Mawson, Contributing journalist

Johannesburg, 27 Aug 2009

Listed telecommunications company Blue Label is looking for firms to buy that can add value to its bottom line.

Joint-CEO Brett Levy says the group is always looking for acquisitions. Although it has a healthy cash pile of R1.76 billion, any takeover must fit into the company “100%”. He adds the company looked at a number of possible takeovers this year, but none were suitable.

Blue Label made several acquisitions over the past several years, most of which are start-up companies. Levy says the company is happy with these, and they are “more than 95% on track”. “The idea is to plug them into the whole system.”

The group has set itself up as a holding company that is parent to a collection of various industry niche players that operate in fields such as prepaid electricity, bus ticketing and money transfer.

In 2007, Blue acquired stakes in Content Connect Africa, Content Connect Australia, Oxigen Services India and set up a joint venture called Blue Label Mexico. The following year, it acquired a stake in African Prepaid Services.

The company now has operations in India, as well as in the Democratic Republic of Congo, Mozambique, Nigeria, Mexico and Australia. By far the bulk of revenue - over 90% ‑ is earned from its South African operations. The international operations contributed almost 5% and the value-added services division 2.2%.

Blue Label says its Mexico operation has also increased its footprint and it hopes to replicate the South African business model there.

Growth ahead

Frost & Sullivan senior ICT industry analyst Lindsey Mc Donald says the company has demonstrated continued growth despite the tough economic environment.

She notes “Blue Label's ability to quickly deploy a prepaid platform into the market has been an important advantage.... This is especially true when combined with the fact that it has ensured it has in-depth domain knowledge in order to effectively sell into various vertical sectors.”

Mc Donald explains the company has manufactured a horizontal network that can be used in a variety of vertical applications. “Key to its success is the fact that it has recognised that each vertical sector requires a specialised sales approach.”

There are a host of applications that the company could provide into various markets and this is limited only by the imagination of the markets in which the company operates, she says. Unfortunately, at times, it is difficult to convince government and regulatory authorities of the potential applications for these products, she notes.

“Blue Label's presence in emerging markets also means it is vulnerable to economic volatility,” Mc Donald warns. “This could be a key area of concern for them moving forward. Despite the fact that there are some indications that the global economy is on the road to recovery, there is still undoubtedly a long way to go.”

The company has already achieved critical mass in terms of the development of its platform, so its research and development costs should be minimal going forward. It is now able to focus solely on selling its solution, while maintaining development spending at a level that keeps its product technologically ahead of the market, she adds.

“Blue Label is already present in most emerging market regions globally,” Mc Donald says. “It has experienced good growth in India and Latin America, and would be expected to consolidate its position in these markets moving forward.”