South Africa: Shopping Spree by Datatec 'Is Pre-Emptive'

Mergers, Acquisitions and Financial Results

Global technology firm Datatec has been on a shopping spree, buying small to medium-sized enterprises in emerging markets to bolster its operations.

The technology industry is recovering from the recession, which has reduced the value of some companies. This has made acquisitions more affordable. On Monday, Datatec said its subsidiary, Logicalis Group, had bought Singapore-based company Touchbase, which has annual revenue of 8m. Touchbase is a unified communications solutions provider focusing on the customer contact centre market.

Last week, Datatec announced the acquisition of Biodata IT SA, a local software security product distributor with annual revenue of about R30m. Earl ier this month, it announced its offer to buy technology distribution group Comztek Holdings for R97m. In April, it bought BDA Connect, a management consultancy in New Delhi. This gave Datatec subsidiary Analysys Mason a base to develop its consulting business in India.

In January, Datatec completed the acquisition of NetStar Holdings for 19,8m. NetStar integrates technology systems for government, telecoms, hospitality and financial clients in Australia, Taiwan, Singapore, Malaysia and Hong Kong. It also has a presence in China, giving Datatec its first entry into that market.

Datatec has been targeting acquisitions in emerging markets to enhance margins, facilitate consolidation in proven markets and to extend its geographical reach. It has operations in 40 countries . Chairman Stephen Davidson, says in the 2010 annual report that Datatec is in a much stronger position having successfully pursued a policy of diversification to reduce dependency on any single market, territory or technology sector. It ended the 2010 financial year with 186m.

Irnest Kaplan, the MD of Kaplan Equity Analysts, says the acquisitions were small in relation to the size of Datatec. "The acquisitions are more to do with improving certain product offerings. It's more bolt-on acquisitions," he says.

Mr Kaplan says that, in general, companies are weary of large acquisitions as they can be complicated and take time to bed down. "If Datatec was to do a big acquisition, it will probably be a company that operates in the same market as Westcon Group or Logicalis division," Mr Kaplan says. In SA, Datatec wants to strengthen its distribution business, a move Mr Kaplan says will increase its activities locally and in the rest of Africa.

The contribution of Datatec's African operations to the group is gradually increasing its visibility and beefing up its product and services to the market. If the acquisition of Comztek succeeds, it will boost its local distribution business because Comztek's networking, security and other hardware and software products are highly complementary to the Westcon Distribution business of Datatec in SA.

Comztek also has operations in the rest of Africa that, when combined with Westcon's pan-African footprint, could lead to the creation of a strategically significant player across many African markets, Datatec says.