| Mon 23 Aug 2004, 8:41 | | ACQUISITION OF SOLUTION TECHNOLOGY INCORPORATED |
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DATATEC - ACQUISITION OF SOLUTION TECHNOLOGY INCORPORATED
DATATEC LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1994/005004/06)
ISIN: ZAE000017745 Share Code: DTC
(`Datatec`)
ACQUISITION OF SOLUTION TECHNOLOGY INCORPORATED
1. Introduction
The Datatec Board of Directors is pleased to announce
that Datatec International Limited`s wholly owned
subsidiary Logicalis Group Limited, through its wholly
owned subsidiary, Logicalis US Holdings Incorporated
(`Logicalis US`), has reached an agreement in terms of
which Logicalis US has acquired 100% of Solution
Technology Incorporated`s (`STI`) issued share capital
(`the Acquisition`).
Following the Acquisition Logicalis US will have over
350 employees and combined annualised revenues
approaching 300 million United States Dollars (`US$`).
2. The Acquisition
2.1 Rationale
Logicalis US has for the past eighteen months been
investing in growing its IBM business relationship to
complement its existing technology partners, Hewlett
Packard and Cisco. IBM operates a geographically
structured and authorised channel strategy which raises
the barrier for new entrants such as Logicalis. The
business of STI will enable Logicalis US to
exponentially grow its IBM product and services
business from some US$10 million per annum currently to
approaching US$100 million. This scale and size would
not have been possible to achieve through organic
growth in the short term.
STI employs 75 staff and generated revenue of US$87
million for the twelve months ended June 2004 in its
principal geographies: the states of Indiana, Illinois
and Michigan. STI will be merged into Logicalis US`
existing operations to become the Logicalis US IBM
division. IBM is extremely supportive of the
transaction with STI, which will position Logicalis US
as a significant IBM Partner.
STI`s main operations are geographically well
positioned to complement Logicalis US` operations
especially in the Midwestern region of the United
States of America (`US`). As a result of the
Acquisition, significant cost savings and improved
operating efficiencies will be realised through
transitioning certain STI back office accounting and
administrative functions to Logicalis US` existing
infrastructure.
2.2 The business of STI
STI is a leading IBM Infrastructure Solutions partner
delivering solutions to over 500 customers principally
in the Midwestern region of the US. STI`s key strength
is the company`s close and entrenched relationship with
IBM. STI`s founders and many employees spent much of
their business careers at IBM, helping in gaining an
insight and understanding of IBM`s business practices
and technologies.
STI has won the IBM Leadership award in five
consecutive terms for outstanding customer
satisfaction, IBM certifications and business volumes.
STI serves a broad range of companies across all
industries and has strengths in all IBM brands:
pSeries, xSeries, iSeries and Storage. STI has a strong
group of technical consultants covering all key
implementation skills including: e-business, storage
area networks, Enterprise Storage Server, server
consolidation and Tivoli Storage Management.
2.3 Consideration and effective date
The consideration for the Acquisition is a maximum of
US$15,7 million (the `consideration`) of which US$2,7
million relates to a profit warranty for the year to 31
December 2004. US$13,0 million of the consideration
will be paid in cash on completion. The profit
warranty consideration, of a maximum of US$2,7 million,
will be payable on achievement of profit before
interest and tax (PBIT) for the year ending 31 December
2004 of US$4,0 million, and will be settled, at
Datatec`s option, in cash or through the issue of new
Datatec ordinary shares.
Datatec has received South African Reserve Bank
approval for the Acquisition.
Datatec is funding the Acquisition using group cash
resources and potentially the issue of new Datatec
ordinary shares to the STI vendors.
The effective date of the Acquisition will be 1
September 2004.
2.4 Financial effects
The financial effects have been prepared for
illustrative purposes only. The Acquisition would have
had the following effect on Datatec`s loss per share,
headline loss per share, net asset value (`NAV`) and
net tangible asset value (`NTAV`) per share for the
financial year ended 29 February 2004, based on the
assumptions set out below:
Before the Pro-forma Change
Acquisition(1 After the
) Acquisition (%)
(cents) (2 & 3)
(cents)
Loss per share (29.8) (29.5) 1.0
Headline loss per (6.6) (4.9) 25.5
share
NAV per share 241.7 241.7 -
NTAV per share 204.9 195.2 (4.7)
1. Extracted from the audited consolidated financial
statements of Datatec for the twelve months ended 29 February
2004.
2. The pro-forma loss per share and headline loss per share
have been prepared on the following assumptions:
- 137.8 million shares are in issue
- funds are invested in US$ at an interest rate
of 1.5%;
- the Acquisition was concluded with effect from
1 March 2003;
- the results of STI are the unaudited results
for the 12 months ended 30 June 2004; and
- a tax rate of 40% in the US.
3. The pro-forma NAV and NTAV have been prepared on the
following assumptions:
- the Acquisition was concluded effective 29
February 2004;
- the profit warranty consideration, of a maximum of
US$2,7 million has not been accounted for as there
is insufficient assurance that the suspensive
conditions will be met and the amounts cannot be
measured reliably; and
- using STI`s unaudited balance sheet at 30 June
2004.
3. CONDITIONS PRECEDENT
The Acquisition is not subject to any conditions
precedent.
Johannesburg
23 August 2004
Merchant bank and sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
CORPORATE FINANCE
