| Wed 2 Mar 2005, 10:17 | | Datatec - Acquisition of Notability Solutions Limi |
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Datatec - Acquisition of Notability Solutions Limited
Datatec Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1994/005004/06)
ISIN: ZAE000017745
Share Code: DTC
(`Datatec`)
Acquisition of Notability Solutions Limited
Introduction
The Datatec Board of Directors is pleased to announce that Logicalis Group
Limited, a wholly owned subsidiary of Datatec International Limited (`Logicalis
Group`), has reached an agreement to acquire 100% of the issued share capital of
Notability Solutions Limited (`Notability`) (`the Acquisition`).
Following the Acquisition, Logicalis Group`s businesses in the United Kingdom
will have combined annualised revenues of approximately 75 million pounds ($ 140
million United States Dollars (`US$`).
The Acquisition
The business of Notability
Based near London, England, Notability employs 60 staff and generated operating
profit of GBP1.75 million on revenue of GBP24 million for the twelve months
ended December 2004. Notability specialises in the supply and integration of IT
solutions and is one of 13 accredited UK IBM Premier Partners in the UK and one
of only 7 eServer-iSeries Premier Partners in the UK, delivering solutions to
over 250 customers. Notability`s key strength is their long standing customer
relationships and strong partnership with IBM. Notability has over the past two
years focused on developing a solutions-led sales approach, which is closely
aligned and highly synergistic with Logicalis` focus.
Notability has grown considerably since a management buyout by the current
management team in February 2003, quickly establishing itself as a leading
partner for IBM focusing on mid-market and enterprise customers. Notability
serves a broad range of customers across a number of industries, with strong
reference customers in the financial services and distribution sectors.
Notability has capabilities in all IBM brands, with strong eServer, storage and
software skills balanced with annuity and professional services revenue streams.
Rationale for the Acquisition
As previously communicated, Logicalis Group`s strategy is to build a leading
provider of ICT solutions in the UK that can deliver end-to-end networking
integration and enterprise computing solutions capabilities. This approach
mirrors closely the go-to market model that has developed in the US and builds
on the successful recent investments made in the US to increase market share and
improve the group`s competitive position. Notability is a highly complementary
business that will contribute to the profits of the Logicalis Group.
Following the disposal of Logicalis Australia and New Zealand businesses in
March 2004, Logicalis set out its strategy to focus on its UK and US operations
so to attain greater critical mass. The disposal provided the financial
flexibility and available management resources to enable Logicalis to focus on
its UK and US businesses and facilitate growth through tactical acquisitions,
the first such acquisition being the acquisition of Solution Technology Inc., a
Premier IBM business partner, which was completed on 1 September 2004.
The Logicalis Group`s UK business has historically had a strong networking focus
with Cisco being the key partner, but had until now limited enterprise systems
skills and focus to match the Logicalis US businesses (the Logicalis US business
is Hewlett Packard`s largest enterprise partner in the US and a leading IBM
Premier partner). The acquisition of an IBM Premier Partner provides Logicalis
with an enterprise systems capability in the UK and furthers the development of
a more consistent US/UK approach to vendors and customers.
The Acquisition will also add scale to the Logicalis Group`s UK business,
increasing annualised revenues from approximately US$90 million to over US$140
million.
IBM`s well developed channel strategy and strong accreditation requirements
raise the barrier for new entrants. The Notability business will enable the
Logicalis Group to establish a UK enterprise systems business with revenues of
some US$50 million per annum; this scale and size would not have been possible
to achieve through organic growth in the short term.
IBM is extremely supportive of the transaction, which will position Logicalis
Group as a strategic IBM Partner in both the US and UK markets. The acquisition
will also broaden the Notability and Logicalis customer bases, providing
opportunities for cross leverage and allows Logicalis UK to become a strategic
ICT supplier to customers in the mid-market and capture an increased proportion
of customer spend through the provision of both network (data and voice) and
enterprise systems IT solutions.
Consideration and effective date
The consideration is a maximum of GBP11.4 million (the `consideration`) of which
GBP1.0 million relates to a profit warranty for the year to 31 December 2005.
GBP10.4 million of the consideration will be paid on completion, settled through
a combination of cash (GBP9.2 million) and Datatec shares (GBP1.2 million). The
maximum profit warranty consideration, of GBP1.0 million, will be payable if
earnings before interest and tax for the year ending 31 December 2005 of GBP2.1
million are achieved, and will be settled in cash.
Datatec has received South African Reserve Bank approval for the Acquisition.
Datatec is funding the Acquisition using group cash resources and the issue of
new Datatec ordinary shares to the Notability vendors.
The effective date of the Acquisition will be 1 March 2005.
Financial effects
The financial effects have been prepared for illustrative purposes only. The
Acquisition would have had the following effect on Datatec`s earnings per share,
headline earnings per share, net asset value (`NAV`) and net tangible asset
value (`NTAV`) per share for the six-months ended 31 August 2004, based on the
assumptions set out below:
Actual - before Pro-forma - Change
the after the (%)
Acquisition(1) Acquisition (2 &
(cents) 3)
(cents)
Earnings per share 39.98 40.36 0.94
Headline earnings 0.10 0.98 921.33
per share
NAV per share 287.38 286.83 (0.19)
NTAV per share 229.00 214.27 (6.43)
Extracted from the unaudited consolidated financial statements of Datatec for
the six-months ended 31 August 2004.
The pro-forma earnings per share and headline earnings per share have been
prepared on the following assumptions:
- 138.0 million shares are in issue;
- funds are invested in UK at an interest rate of 4.75%;
- the Acquisition was concluded with effect from 1 March 2004;
- the results of Notability are the unaudited results for the 6 months ended
31 December 2004; and
- a tax rate of 30% in the UK.
The pro-forma NAV and NTAV have been prepared on the following assumptions:
- the Acquisition was concluded effective 31 August 2004; and
- using Notability`s unaudited balance sheet at 31 December 2004.
3. Conditions Precedent
The Acquisition is not subject to any conditions precedent.
Johannesburg
2 March 2005
Merchant bank and sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
CORPORATE FINANCE
Date: 02/03/2005 08:30:06 AM
Produced by the JSE SENS Department
