Faritec Holdings, a JSE-listed IT services and solutions company, today concluded its multi-million rand acquisition of Enterprise Connection, a local black-owned IT specialist.
The R54m deal is a significant milestone in Faritec`s growth and is in line with its strategy to diversify and expand its solutions portfolio.
The integration of the two companies, expected to be completed in June this year, will almost double Faritec`s size and create one of the largest black-empowered technology solutions providers on the JSE. Earnings per share is estimated at 7.4c and annual revenue at above R750m to 30 June 2005.
The combined entity will have a skilled staff complement of more than 400. Enterprise Connection - formerly the corporate arm of the retail-focused Connection Group - is a company with R300m turnover that specialises in technology solutions and services for small to medium enterprises (SMEs) and the public sector. It also has solid partnerships with HP for infrastructure, Microsoft, Citrix and Symantec for software, and Hansen and AXSone for other technology offerings.
"The rationale for the deal was simple," explains Simon Tomlinson, the CEO of Faritec.
"We have traditionally focused on IBM infrastructure, business integration, service delivery competency and the provision of enterprise-level managed security. We remain committed to these areas of business while expanding our technology portfolio through this acquisition ... adding a host of strategic technology partnerships to our existing agreements with IBM, SAP, Microsoft and Symantec."
Paul Moses, the CEO of Enterprise Connection, believes that the deal will have far-reaching benefits for existing customers and staff.
"The acquisition presents a wonderful opportunity for our staff - it creates further avenues for personal growth and development along with the expansion of our joint offerings to our customers," he says.
"For Enterprise Connection the deal was about a strategic fit - it allows us to compete effectively in the larger contracts and tenders. We will also be able to improve our focus in the high-end solutions and services markets which would have required a significant investment in technology, systems and people.
"Faritec has already made this investment and we can leverage off it to add value to our customers. We have found very little overlap between the two companies` customer bases and this also provides and opportunity for the group." Additional benefits of the deal include: national expansion; initial economies of scale; Enterprise Connection`s rental finance option and Faritec`s services skills that can be offered to each company`s customers; the fact that the integrated company will be in a stronger position when bidding for larger tenders; and an increased BEE shareholding through Enterprise Connection`s relationship with Canal Square.
The post-acquisition BEE shareholding in Faritec will improve to more than 40%. With Canal Square as a shareholder alongside the J&J Group, Faritec`s shareholder base is diversified even further. Both the BEE partners remain committed to the growth and development of the Faritec Group.
In terms of the deal, half the acquisition will be paid for in cash and the remainder will be covered by issuing 46.6m ordinary shares at 58c per share. "To date, Faritec`s expansion has been primarily organic, driven by the creation of start-up offerings as part of the group. By acquiring Enterprise Connection, we are starting our growth-by-acquisition phase and are creating a sizeable business that will service our customers more effectively," concludes Tomlinson. For more information on Faritec, visit www.faritec.com. Enterprise Connection can be found on the Web at www.econn.co.za.
Fact file
* The purchase price payable in respect of the acquisition is R54 100 000, which will be discharged as 50% in cash and 50% by way of Faritec issuing 46 637 931 shares at 58c per share to Enterprise Connection.
* The deal is expected to close on 30 May 2006, although the effective date of the transaction (for calculation purposes) was 1 July 2005.
* Enterprise Connection is a national technology solutions provider concentrating on the SME and public sector markets. It has in excess of R300 million revenue per annum and a skilled and motivated workforce of approximately 180.
* The Enterprise Connection business is more than 50% black owned via its relationship with Canal Square Investments and has met all of the BEE requirements as set out by the accepted regulatory codes. "This transaction moves us into the next stage of our evolution beyond ownership, towards being a significant player and investor in the local ICT market," says Mncedisi Mayekiso, a director at Canal Square.
* In April 2003 Faritec concluded an empowerment transaction with a consortium led by the J&J Group. The Consortium acquired 30 percent equity in Faritec and as part of the BEE transaction. "The J&J Group is excited about the opportunities the larger Faritec group will be able to generate from the market through critical mass," says Jayendra Naidoo, an executive director at the J&J Group.
* Faritec`s group revenue in September 2005 increased year-on-year by 31.6% to R434 million with a profit from operations of R4.4 million - an increase of 127%. Headline earnings were 2.6 cents per share and software and services-based business accounts for 40% of its 2005 revenue.
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