The National Empowerment Fund (NEF) has been named as the entity that has bought out Dimension Data`s 49% stake in enterprise technology solutions provider Choice Technologies, in a deal concluded in December.
The transaction, the value of which cannot be disclosed under an agreement between the three parties, will effectively see the stake warehoused by the NEF, for a period of five years.
During this time, says Choice CEO Semela Tseka, the company will position itself to reacquire the stake, a portion of which will be set aside for broad-based empowerment that will include women. It is yet to be decided, between the NEF and Choice, what portion of the 49% interest will be made available for broad-based empowerment.
The NEF falls under the Department of Trade and Industry, and is a government vehicle that drives black economic empowerment (BEE) in various sectors of the South African economy. Since its establishment in 1998, the fund has acted as a transformation catalyst in various industry sectors, with deals in sectors such as mining, publishing and manufacturing.
The deal makes Choice, which already has an AA rating from Empowerdex, a 100% black-owned and controlled company.
Independent group
Tseka says Choice will initially focus on "going to market" as an independent, growing company.
"We will spread the message that we are positioned to deliver as an independent group. The impression used to be that Choice Technologies could not deliver without Dimension Data, but this was not the case," he explains.
Longer term, the company will pursue a programme of acquisitions and organic expansion, says Tseka, adding that several potential acquisitions have been identified that could add value to the company. Talks are under way with these companies, and external due diligences are being conducted. Choice will also concentrate on expanding its blue chip client base, he says.
Tseka does not exclude the possibility of Choice seeking markets outside SA, whether through acquisitions or collaboration.
The NEF deal also brings a cash injection for Choice, but Tseka denies that this is an amount of R10 million, as reported earlier. Refusing to disclose the actual amount, he says the cash will be used to recapitalise the business, strengthen the balance sheet and embark on an aggressive growth strategy.
Commenting on the deal, DiData says in a statement that it offered its equity in Choice to the NEF in a "favourable deal that ensures the continued viability of Choice Technologies and is in line with its commitment to the development of black enterprises".
Transformation
"The exiting of our shareholding had to be based on sound business rationale, while also taking into account the responsibility leading companies in SA have to the promotion and development of transformation. Therefore, as a company committed to transformation, we agreed not to demand the full monetary value due," says Sean Joubert, CFO of Dimension Data.
"The decision to exit our shareholding in Choice Technologies is in line with our strategy to focus our finances and resources on developing the solutions and services that we offer internally rather than through joint ventures."
Tseka adds that Choice would continue to take advantage of further opportunities in both the public and private sectors. Despite the costly and long lead times associated with government deals, he notes that the company would not turn its back on lucrative government contracts.
But the company would stride to attain an even 50:50 revenue spilt between government and the private sector. Tseka says 75% of its revenue is currently generated from the public sector, with the rest coming from private sector deals.
Commenting on DiData`s exit from Choice, Tseka describes the deal as "amicable", and refuses to be drawn on past reports of a breakdown in relations between the companies.
"We still have a good relationship and are partnering on several projects in the Western Cape."
Related story:
Choice pulls off DiData buyout
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