CRANE BUYOUT SET TO HOIST EARNINGS AT DATATEC SOUTH AFRICA

Mergers, Acquisitions and Financial Results

Datatec is splashing out R290m to buy Crane Telecommunications, a European distributor of voice and data communications services. The move will cost up to £20.7m and will be paid for with £11.5m in cash and by issuing new Datatec shares worth £9,2m. The cash will come either from Datatec's existing resources or from placing new shares with an institutional investor if the directors deem that more beneficial to the balance sheet. Its shares fluctuated between R38.80 and R35.65 on the JSE after the move was announced last week.

Crane would be integrated into the European operations of Westcon, Datatec's largest subsidiary, which specialises in supplying networking equipment. One instant benefit would be to reduce Westcon's reliance on selling networking equipment from Cisco, the US supplier that dominates the market but is notoriously tight on profit sharing with its distribution partners.

Crane sells equipment from vendors including Avaya, Nortel, Alcatel, Mitel, BT and Samsung, and also provides higher margin services including system design, consulting, technical support and technical training. It has offices in the UK and the Netherlands, and works through a network of more than 250 resellers spread across Europe.

Crane's revenue for the year to December touched £74m. Earnings before interest, tax, depreciation and amortisation (ebitda) came in at £2,8m. It carries a net debt of £10m, and Datatec expects the deal to boost earnings only in the year to February 2008.

"The earnings-enhancing acquisition of Crane brings further breadth, depth and scale to Westcon's European operations and consolidates Westcon's position as a leading value-added distributor of voice, data and convergence products in Europe," said Datatec CEO Jens Montanana.

In February, Datatec struck a R500m deal to buy the distribution company NOXS Europe, which operates in seven territories. NOXS was also folded into Westcon with the expectation of cost savings and cross-selling opportunities.

Both acquisitions were important steps in Datatec's plan to capitalise on Westcon's financial strength and size in Europe, Montanana said. The deals offered new opportunities to sell more equipment and services to new and existing customers.

Datatec has told shareholders to expect its revenues to increase 17% to almost $3,5bn for the year to February 28, and its Ebitda to reach $117m, up from $85m a year ago. In that trading update, Montanana said Westcon's revenue in the past year had grown 10% to $2,5bn and its profit margins had increased after tightening up its performance in Europe. That turnaround had made it the right time to capitalise on its recovery by growing through acquisitions. A "pipeline of opportunities" to expand Westcon were being investigated, he said.

Business Day