Minority shareholders in IT companies need to be certain they are not being taken for a ride as low share prices lead to a potential wave of deals, analysts caution.
Low share prices in the sector have seen a flurry of activity recently including a hostile takeover attempt, a proposed management buyout and speculation of a buy-in.
Analysts are warning minority shareholders to make sure they are not getting the short end of the stick.
IT share prices have plunged over the past year, with some shares, notably those of Dimension Data, sinking to levels not seen since the mid-1990s. Analysts say this has resulted in some shares being very cheap relative to the real value of the companies they represent.
MB Technologies announced recently that a shareholder consortium made up of senior management and others had proposed to buy out minorities at 140c a share.
Craig Hackney, an IT analyst at Barnard Jacobs Mellet, says many companies, including MB Technologies, are undervalued as a result of the poor market. He says he would not be surprised if there was more activity along these lines.
A recent cautionary notice issued by FrontRange sparked talk of a possible buy-in at that company. Hackney says Canadian group DataMirror`s recent bid to take control of Idion Technology Holdings was also a symptom of the poor market.
"I think often the problem in SA is that investors tend to lump technology companies together as a group. They do not really split out those companies which are resellers of other technologies versus those that have their own proprietary technologies, and realise that there are different risk profiles but also different valuations that can be attributed to those two.
"I think that Idion was a case in point, where a player with more of a global understanding of where the market is going - and the technologies - saw an opportunity to get hold of some relatively good technology at a very low price."
However, he says that with more potential deals on the way, minorities need to make sure they are not being short-changed. In the case of MB Technologies, several analysts say they are advising minority shareholders not to accept the 140c offer as the company is more valuable than that and they should be given a better price.
Another analyst says with shares now being cheap, it is easy for companies` management to benefit from buyouts at the expense of minority shareholders.
"Obviously management types stand to benefit, otherwise they wouldn`t do it. But just because the share price is low doesn`t mean the inherent value of the company is not substantially higher. In many cases it will be, and shareholders are going to be cheated.
"Minority shareholders need to do their research and, if they believe they are getting a raw deal, they have to hold out."
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FrontRange cautionary sparks talk of buy-in
MB Tech shares rise on buyout news
Idion claims victory
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