The IT industry once again emerged as the main force in merger and acquisition activity last year, thanks mainly to the deals around Dimension Data`s London listing.
With 124 deals worth R90.3 billion, the IT sector accounted for a quarter of the total value of transactions - R372.2 billion - recorded last year, according to Ernst & Young`s 10th annual Mergers & Acquisitions book, launched in Sandton this morning.
The deals leading up to Dimension Data`s listing on the London Stock Exchange contributed a major portion of the value for the year, says Ernst & Young corporate finance partner Dave Thayser, who edited the book.
The transactions involved the sale of Dimension Data`s assets to Dimension Data plc for R57.4 billion, in exchange for shares in the new company. The shares were then distributed to the shareholders of the South African company, giving investors a direct stake in the London-listed company.
Even if the Dimension Data unbundling were removed from the picture, the value of transactions in the IT sector was still up substantially on the 1999 figure of R19.8 billion.
Thayser says the bulk of the remaining deal value in the IT sector came from deals in which Dimension Data was involved, either actively or passively.
The largest such deal was the unbundling by Comparex of its stake in Dimension Data, worth R11.8 billion.
Other IT sector deals included the R1 billion sale by Datatec to Worldcom of its Internet service provider business, UUNet.
Thayser says the question remains as to whether the trend will continue this year. He points to a stream of profit warnings emanating from major IT players in the US, as well as large losses on global stock exchanges, as reasons for the level of IT merger and acquisition activity to slow.
"Nevertheless, it is unlikely that the current situation represents the long-term picture, but is rather a healthy moment of sobriety in what had become a rather long drunken orgy," he says. "IT will remain a fast-moving industry, and the need to acquire skills and products through acquisition will reassert itself before too long."
He adds that concerns of a global depression, with the current state of equity markets, might be thought to have a dampening effect on merger and acquisition activity, but an alternative view would be that there are bargains and value deals available, particularly in the IT industry after the recent revaluation.
He notes that mergers and acquisitions of related businesses were the major influence on merger and acquisition activity, accounting for 491 deals worth R180.4 billion.
Included in these is the swap by Transnet of its 23% stake in MTN for a stake in M-Cell, giving M-Cell 100% of mobile phone company MTN in a deal worth R12.1 billion.
"Typical of the multifaceted nature of many deals, the deal was simultaneously an acquisition and a restructure, as it eliminated one layer in the Johnnic Holdings group," says Thayser. As part of the transaction, Johnnic Communications bought a further 75 million shares in M-Cell from Transnet for R2.5 billion, increasing Johnnic`s stake in M-Cell to just more than 50%.
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