One of the most successful empowerment deals in the local ICT sector matured this month, but in an unusual move, the bulk of the investors decided to plough back most of the R1.26 billion payout into the company's African operations, as the continent is seen as the next big area of growth.
Broad-based empowerment entities that invested R380 million into Dimension Data almost eight years ago, including DiData's MEA chairman Andile Ngcaba's investment vehicle, received a payout of R1.26 billion earlier this month, as the deal matured.
Yet, instead of taking the money and running, the bulk of it was invested back into the ICT company, this time into Dimension Data Middle East and Africa (DDMEA), which is seen as an area of growth for the group.
Absa Investments analyst Chris Gilmour says it is quite unusual to see empowerment parties putting their money back into the company. He explains that, generally, as deals mature, entities sell back their stock and take the money.
Gilmour says some deals unravel and empowerment parties vanish without a trace, while other agreements need to be restructured as the share price drops. He says with the next big thing being a concerted push into Africa, it is easy to see why the empowerment groups have reinvested.
Dimension Data, which was delisted towards the end of 2010, after being bought out by Japan-based NTT, turned $5.79 billion in the year to September, a 14% gain on 2010. It also reported double-digit operating profit growth of 10.8% in the 2011 year.
Gilmour notes that NTT bought out Dimension Data, because of the massive potential that Africa holds and that there are not many deals that offer exposure to Africa.
Dimension Data grew revenues in key sectors off the back of the deal and is now looking forward to a second round that will benefit the company, and empowerment beneficiaries.
Staying put
In September 2004, DiData entered into its original empowerment deal when a consortium led by Ngcaba, a former Department of Communications director-general, bought 25.01% of the South African subsidiary for R380 million.
Earlier this month, the deal matured and the bulk of the investors decided to plough back the R1.26 billion benefit into the company at Middle East and Africa (DDMEA) level, although the investment excludes its Middle East and Campus operations.
Ngcaba will remain a shareholder through Convergence Partners, along with 35 broad-based groups that provide support and care to over 45 000 vulnerable individuals in the nine provinces of SA. Ngcaba will also keep his position on DDMEA's board.
Ngcaba is re-investing his full stake back into the business through Convergence Partners, while previously disadvantaged staff, who worked for Dimension Data during the almost eight-year empowerment period, were paid the value of their stakes on 7 September.
As a result of the reinvestment, the total amount of which has not been disclosed, DiData will keep its empowerment status as a level three contributor and its equity stake is just north of 20%, says group CEO Brett Dawson. Convergence Partner's new stake in the business has not been disclosed.
Dawson says the initial empowerment structure lasted “seven years and some change” and DDMEA is ready to enter another five-year minimum transaction. The reinvestment is a “significant” deal, he adds. “There are not many deals of this size that get done in our sector.”
Dawson adds that the reinvestment is a huge vote of confidence, as the empowerment parties have the opportunity to exit.
Widespread benefit
Dawson says Dimension Data considered the ICT charter and is driving all seven pillars. He says the company is confident it will keep its status and will work to improve from a level three contributor. The highest possible level is one.
There are not many deals of this size that get done in our sector.
Brett Dawson
The ICT sector charter, which has been nine years in the making, was finally gazetted in June this year. It came into effect immediately and aims to ensure transformation in the sector.
The charter requires that unlisted companies in the ICT sector be 30% empowered, and listed entities sell 25.1%, with equity deals capped at R7.5 billion. The generic codes only require firms to sell a 25.1% stake.
“Within Dimension Data, transformation has opened up massive business opportunities during the period, with revenues in the public sector market, and across the rest of Africa, growing over 750% and 110%, respectively,” says Dawson.
“Without question, the business would not have been able to achieve such outstanding growth rates without driving an aggressive transformation strategy at the same time,” Dawson notes.
Since the initial deal was inked in 2004, revenue from the African continent grew from R700 million to an estimated R1.5 billion as of October last year.
Ngcaba has played a key operational role transforming the DDMEA business.
Jeremy Ord
Derek Wilcocks, CEO of Dimension Data Middle East and Africa, says growth in business in the region saw the employee base double, from just under 3 000 employees in three countries to around 5 800 employees in 20 countries across the African continent.
Ngcaba explains the new investment is into DDMEA as there are huge opportunities for growth in the Southern African Development Community region, as well as in East and West Africa.
It is important to grow DiData's reach in SA and those other regions, says Ngcaba. Group chairman Jeremy Ord says Ngcaba “has played a key operational role transforming the DDMEA business”.
Driving transformation
“Transformation is an ongoing strategic business imperative - not a period in time or a transaction - and the group remains committed to deepening transformation across the business,” says Ord.
Staff benefited financially from the Employee Empowerment Trust, which touched 2 177 employees, as well as through extensive training and career development opportunities, says Dawson.
Ngcaba says: “One of the successes I am particularly proud of is that we grew our employment equity through the creation of some 3 500 new PDI [previously disadvantaged individual] jobs, and created new jobs through our enterprise development initiatives.”
Dimension Data founded an entrepreneurship programme that incubates entrepreneurs wanting to take part in the ICT industry over a 12- to 24-month period.
The programme has seen 75% participation by PDIs and PDI women entrepreneurs. More than 57 entrepreneurs have benefited from this programme, including 12 broad-based empowerment trust beneficiaries who initiated start-up co-operatives including bakeries, sewing and other rural developmental business initiatives across all nine provinces, says Dimension Data.
Ngcaba says the philosophy around the deal is about how DiData can contribute in all the pillars of society by working through groups that deal with issues that plague SA, such as education and health.
Ngcaba says DiData's trust, which has been renamed to the Dimension Data Community Development Trust, has empowered 35 broad-based community groups that provide support and care to more than 45 000 vulnerable individuals. “These groups align with the government's national priorities of health, HIV/Aids, education, women and children, job creation, and rural development.
“Our broad-based groups, represented by the Dimension Data Community Development Trust in the future, are critical to sustainable development in SA. Our goal is to ensure they are provided with ongoing business support and guidance,” says Ngcaba.
Groups in the trust will receive an annual payout so they can expand their services and grow their reach, adds Ngcaba.
We grew our employment equity through the creation of some 3 500 new PDI jobs.
Andile Ncgaba
Some 27 500 learners have benefited from DiData's e-learning programmes across 53 schools in seven provinces. Annually, Dimension Data's Saturday School programme provides support for 100 learners in reaching matric and preparing for higher education.
The programme has reported a 100% matric pass rate, and 95% university entrance. In 2011, 50 of its learners notched up a total of 68 distinctions. Dimension Data also provided one-year learnerships for around 150 previously disadvantaged learners in a programme run annually in partnership with the Sector Education and Training Authority and key vendors. More than 70% of these learners secured permanent employment with Dimension Data after their internship year.
Wilcocks adds that DiData's business growth has allowed employees to advance management and technology skills through education opportunities and on-the-job training. “Personal development opportunities were also created by providing employees the potential to live and work not only across the African continent, but also internationally.”
Under the initial deal, each of SA's nine provinces was represented by the group of broad-based BEE participants, and the initiatives chosen supported educational and developmental projects managed by women and youth.
Previous plans
The 2004 deal was mostly funded through an earn-in model, while the consortium contributed a cash payment of R23 million. The structure allowed the consortium to pay down its financed stake by using its full share of annual headline earnings of the company over the terms of the transaction.
The rest of the consortium included Safika Holdings, which is led by Moss Ngoasheng, and a group of broad-based black economic empowerment participants, including current and future DiData SA staff members, as well as nine broad-based groups.
After the transaction, DiData owned 74.99% of DiData SA, while Ngcaba Holdings had 12.71% and Safika had 5%.
As part of the initial deal, Ngcaba Holdings undertook to allocate 2.9% of its 12.71% shareholding to a group of broad-based empowerment participants. Safika gave up 1% to the broad-based group and DiData SA contributed 6.3%, taking the total broad-based shareholding in DiData SA to 10.20%.
In December 2010, when Safika exited the consortium, Convergence Partners acquired 50.01% of Safika's 5% shareholding, with Dimension Data acquiring the balance. Ngcaba Holdings is now part of Convergence Partners.
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