International ICT company Datatec is looking to make acquisitions in China and the Asia-Pacific Rim, an area in which it does not have a large presence.
CFO Ivan Dittrich says the company is “looking at China and other markets in Asia”. It does not have any specific deals on the table yet, but is looking to expand each of its business units into the Asia-Pacific market, he adds.
Datatec's main business units are Westcon, which is a global distributor of networking and communications convergence products; Logicalis, its ICT infrastructure solutions and services unit; and Analysys Mason and Intact, through which it offers consulting services.
While the company yesterday said group revenue slid to $1.8 billion during the half-year to August, Dittrich says the second half of the year will show an improvement, both over the first half and the second half of last year.
He adds that the company traditionally has a better second half than the first six months. Datatec is also confident of meeting its full-year revenue forecast, which is between $3.7 billion and $4 billion. Last year, revenue was $4.2 billion.
Diversity is key
CEO Jens Montanana says: “Our divisional structure, with multiple lines of business and geographic diversification, continues to be a strength. We remain committed to widening our global reach and are now well positioned to embark upon the next stage of our international expansion.”
Dittrich says the territories the company is looking at expanding into have “held up well during the recession”. He adds that the region is a huge market and a good area in which to expand.
At the moment, the company has a handful of operations in Asia, through Westcon. Dittrich also says there are some business units in Malaysia and Thailand. The company also has a “small” presence in India.
Datatec's investment in each individual transaction is unlikely to top $50 million, notes Dittrich. However, there could be one single deal worth that amount, he adds. He says the investment will vary from country to country.
First mover
Frost & Sullivan ICT industry analyst Spiwe Chireka says Datatec's broad geographical spread, which it continues to grow, is a strong competitive advantage for the group. As it has created diverse revenue streams, it has reduced its dependency on any single market or technology sector.
“The group's expansion into the Asia Pacific (APAC) region through the acquisition of New Zealand company Datastor this month is another example of this,” Chireka says.
“A strong presence in APAC could be highly profitable in the short term, as Frost & Sullivan believes the region has positioned itself as the hub of IT outsourcing. Companies like Datatec, with a strong presence, are likely to reap rewards.”
Chireka adds that the group's intention to move into China could be another major source of growth. “The risk of moving into this market is sizeable due to the relatively high barriers to entry.
“However, no one can deny the potential it offers due to the huge addressable market in that country. As far as I know, Datatec would be the first among its key South African competitors to enter this market, so all eyes will be on the group to see how it fares.”
The company's shares were trading slightly higher this morning, at R27.74, a 0.87% gain in early morning trade.
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