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Altron plans Bytes UK demerger, London listing

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Mteto Nyati, Altron chief executive.
Mteto Nyati, Altron chief executive.

JSE-listed IT services company Altron is looking to demerge and separately list its Bytes UK subsidiary.

The company says its board concluded the true value of Bytes UK, a wholly-owned subsidiary of Altron, is not reflected in the company’s share price.

It notes this business has increasingly developed a growth trajectory and strategic levers that are different to the rest of the Altron Group and operates in a capital market with a highly-rated peer group.

Bytes Technology Group was established in the UK in 1982, and the business is focused on software licensing, software asset management, security solutions, cyber consulting services and public cloud migration and management.

According to Altron, the Bytes UK group has over 7 500 customers, predominantly in the large to medium enterprise space and is well represented in the national and local government sectors.

It notes Bytes UK represents well over 100 software vendors and has been the recipient of many vendor awards over the years.

In the 2019 financial year, Bytes UK contributed 41% of Altron revenue and 23% of Altron EBITDA.

A fix for the future

In a telephonic interview with ITWeb, Mteto Nyati, Altron’s group chief executive, said over the last three years, one of the things the board asked of management was to fix the business.

“Fixing the business meant getting rid of non-core assets, and we also had to make sure operations that were close to one another, whereby there were some duplications, were rationalised.”

He added the company also decided to invest in the future. “When you look at that journey that we have taken over the last three years, it puts us in a position where we feel we are a very strong organisation. The organisation that we have here in South Africa and Africa, together with the organisation that we have in the UK, are all strong.

“However, if you look at the organisation and see if the share value is reflective of the true value of the company, this is where we came to the conclusion that there is a strong belief that Bytes UK is highly undervalued and, because of that, we had to find a way of how best we can unlock the value for the shareholders,” Nyati said.

“Now we feel it is time to be asking a different question – ‘how can we make sure that we get the right value for Bytes UK?’ That is the rationale – to unlock the value for Bytes UK.

“We have a team there that has been operational over the past 22 years, driving that company, and it delivered exceptional results over the last 10 years if you look at revenue compounded annual growth rate of 10% per revenue level. So we feel this is the right time to do the unbundling so that we realise the full value of that organisation.”

Market considerations

Altron says as part of its strategic review, the board assessed each of the business units within Altron to identify opportunities which have the potential to unlock further value for shareholders and streamline operations.

Consequently, the board has resolved to pursue a potential listing and share offering of Bytes UK on the London Stock Exchange; a secondary listing of Bytes UK on the JSE; a demerger of the remaining Altron shareholding in Bytes UK post the share offering to Altron shareholders; and with Altron remaining listed on the JSE.

The company notes that while the board is cognisant of the current state of capital markets and the impact of market conditions on the success of a potential transaction, the board has deemed it appropriate to commence the preparation of the potential transaction.

It says this preparation is likely to take between nine to 12 months to complete. Altron will reassess market conditions post-completion of the required preparation work and if financial market conditions have not improved, the board may elect to delay or modify the potential transaction, as appropriate.

The governance and leadership elements related to the potential transaction will commence forthwith, and these will include constituting an independent board of directors for Bytes UK; the separation of Bytes UK from all group functions; concluding arrangements with the Bytes UK management team, consistent with an independent company; and separating all Bytes UK operational functions to ensure a standalone operational business.

Altron has appointed Rand Merchant Bank, a division of FirstRand Bank, as advisor on the proposed transaction in SA, and is in the process of appointing an advisor in the UK to advise Bytes UK on the potential listing and share offering.

Independent approach

Mike Leeming, Altron chairman and Nyati, on behalf of the board, indicated in support of the proposed transaction that: “In addition to the value created to date, through delivering on the One Altron strategy, the demerger and listing of a fully independent Bytes UK has the potential to unlock further value for Altron shareholders and at the same time create a successful standalone business operating in the UK.

In 2019, Altron, excluding the Bytes UK business, achieved revenue of over R9 billion and EBITDA of over R1.2 billion and will remain a market-leading and well-positioned business in its chosen African markets.

“The potential transaction will bring greater focus and simplicity within the Altron group, which should enhance the returns for shareholders and enable the businesses to grow with discipline as it continues to invest in the jurisdictions in which its core operations are located. Both businesses operating independently will offer better opportunities for our stakeholders.”

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