UCS seeks global expansion

By Nicola Mawson, Contributing journalist

Johannesburg, 17 Jul 2009

UCS is selling its enterprise solutions (ES) business division to UK-based SAP specialist Axon, for a maximum amount of R125.26 million.

UCS deputy CEO Dean Sparrow says the deal will allow UCS Solutions' managed services division to grow its annuity-based revenue, as well as expand into other territories. UCS, which provides software, solutions and services, will benefit from supplying maintenance to the unit after it is sold, he explains.

The business is being sold to Axon division HCL Axon, with effect from August. The sale of the unit is as a going concern, which means the 70 staff members will retain their jobs, explains Sparrow.

The deal also gives UCS preference in providing ongoing support and maintenance, what Sparrow refers to as the “run” elements of the business. He says this will allow the managed services division of UCS Solutions to grow internationally.

Despite the short-term profit windfall, which is expected to bolster earnings per share by over 9 000%, the company expects to gain annuity-based revenue from providing ongoing support, hosting and outsourcing to Axon's retail SAP clients. “In reality, for us, it's more about the long-term opportunities,” says Sparrow.

UCS will receive R57.1 million upfront and, based on revenue targets, will receive a maximum of R125.26 million. The revenue UCS earns from the sale will be used partially to meet its current and future obligations, and may also be used for acquisitive and organic growth, the company says.

Global ambitions

The ES unit implements SAP in large retailers in SA. It has started working with Axon on the Shoprite SAP implementation, which is at blueprint stage, says Sparrow.

However, UCS was concerned about whether it would be able to grow in a sustainable manner over the next five years, as there are a limited number of large retailers in SA, he explains. The company has also implemented SAP at Massmart and Pick n Pay.

UCS started partnering with Axon about a year ago on SAP projects and, during the initial stages of the Shoprite project, proved its credentials, he says. This paved the way for UCS to sell the ES unit to Axon.

The transaction will now allow ES to expand globally into implementing SAP for other large retailers. Axon has operations in the US, Europe and India, and has 4 500 SAP specialists.

HCL Axon's strategy is to expand into new or uncontested market spaces. “The transaction deepens HCL Axon's SAP capabilities, widens its reach in the retail vertical market, further increases the global delivery capabilities and provides a significant boost to the company's market presence in SA,” says UCS.