M&A outlook 'foggy`

By Christelle du Toit, ITWeb senior journalist

Johannesburg, 17 Apr 2008

The financial market will be dominated by "fog" for the rest of the year, with the drivers of mergers and acquisitions (M&A) in the technology arena urged to proceed with care.

This is according to Ernst & Young director for transaction advisory services Dave Thayser. He adds there is, nonetheless, still a lot of movement in the IT M&A arena, although not in the league of the so-called mega-deals.

"The deal flow already tapered off dramatically last year. Now we are seeing the emergence of the strategic buyer who identifies gaps in their portfolio."

Thayser says price tags in M&A deals are a bit lower at the moment and the deals generally take longer to complete, with longer due diligence timelines.

He says this could be the status quo until after the 2009 election, with the situation in Zimbabwe, continued interest rate hikes, spiralling inflation, and lowered consumer demand all contributing to the murky forecast for the year ahead.

However, it is not all doom and gloom.

As of last year, nearly R8 billion worth of M&A activities had taken place among ICT companies, with newly-listed Blue Label Telecoms leading the pack. The company had done transactions to the value of R3.8 billion in the run-up to its listing, the biggest of which was the acquisition of Blue Label Investments, for R1.7 billion, followed by the acquisition of Cellfind for R137.2 million.

In the software and computer services category, Altron led the field with a R1.3 billion purchase of Bytes Technology Group shares. This was followed by a half a billion rand buy into NOXS Europe, by Datatec.

Blue Label, in Thayser`s opinion, is one of the telecoms players to keep an eye on. "It was a small niche business that was entrepreneurial and had a good idea."

According to Thayser, the challenge going forward will be for the company not to become too bureaucratic and to retain its entrepreneurial spirit.

However, the company is following the investment strategy that Thayser thinks will work best under the current market conditions: going for small acquisitions on a road towards value creation.

On the whole, Thayser says the ICT market is still quite cautious. The only big deal that is foreseen this year is the possible Telkom/Vodacom deal that fell though, although Oger recently expressed interest again in the fixed-line monopoly.