JSE-listed CS Holdings is merging its systems integration division with Argil Holdings, a subsidiary of privately owned Worldwide African Investment Holdings, in a R30.5 million black empowerment deal.
CS Holdings (CSH) will pay for 100% of Argil Holdings by issuing shares, resulting in Worldwide owning 15% of the issued shares of CSH.
Three Worldwide directors - Litha Nyhonyha, Thuli Zuma and Nomfundo Qangule - will join the CSH board in a non-executive capacity.
Worldwide is bound to acquire a further 10% of CSH, which Zuma says he is hoping to achieve within the next two months, although the group has until next June to take up the additional shares.
Jarrett Pech, CSH`s chief financial officer, says the merger of Argil and CS Systems Integration also introduces Worldwide African Investment Holdings as a strategic partner.
Argil, formerly Ernst & Young Consulting, achieved revenue of R50 million in its first nine months, with profit after tax of more than R7 million, he adds.
The deal is expected to add R100 million to CSH`s revenue over the next year.
CS Systems Integration MD Dave Vink says the deal is important for the division. There is no significant overlap between the two entities, and the services they offer are complementary, which will assist in their integration.
CS Systems Integration is strong on the implementation side, whereas Argil`s strength lies in a powerful suite of services and consulting. Argil, with a staff of 60, has a skilled SAP team, he adds.
CSH CEO Annette van der Laan says the deal is very important strategically for the group.
"We have been looking for the right partner for a long time, and we are confident that Argil is best suited for our business.
"The transaction makes good business sense as it contains all the right ingredients and will enhance our earnings. CS Holdings now has a credible black empowerment profile."
She adds that the deal will allow CSH to extend its reach in the public sector. In the latest financial year the public sector accounted for only 5% of CSH`s business, and with the sector accounting for 60% to 70% of Argil`s business, that 5% should grow to 15% to 20% in the next year.
Nyhonyha says the deal has also benefited Argil, in that it has helped meet its objectives.
"It has been WAIH`s strategic intent to grow Argil into a listed entity, and with this merger, we have achieved this objective.
"We also had the strategic intent to build Argil into an IT group with critical mass and to obtain for Argil a strategic equity partner. These objectives were also achieved with this merger."
The parties say that the 25% stake was agreed to as an entry-level shareholding. Both say they would like to see Worldwide`s stake rise when the opportunity presents itself.
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