JSE-listed FoneWorx and recently-created entity Value+ are merging, in a deal that could see FoneWorx paying out as much as R1.2 billion if the new entity makes "buckets of money".
The merged entity will be renamed Value+Nettwork and aims to leverage intelligence, value and technology to tap the corporate and consumer markets in areas such as rewards programmes.
Value+ was three years in the making and centres on distributing "value", which it defines as any form of rewards, such as discounts or benefits.
FoneWorx is buying 75% of Value+ from the Kirsch family, and the balance from several other shareholders, including the Amazing Voucher Trust, Pepper Coin Investments, and Worldwide Capital.
The initial purchase price is R191 million, which FoneWorx will pay by issuing shares at 211c. The company's stock closed flat, at 215c, yesterday. In addition, FoneWorx could potentially pay out up to another R960 million in shares, based on profitability targets.
Years in the making
Value+Nettwork will be led by Primedia founder William Kirsh, who will be the chairman, and Mark Smith - current FoneWorx CEO - will be CEO of the merged entity. Kirsh says the company has businesses that form a solid foundation from which to start building.
Issie Kirsh founded radio station 702 in the early 1980s, and his son, William, flipped the station into what is now Primedia, which was founded in 1994. The media group listed in 1995, before being de-listed after a private equity buyout in 2007.
Since resigning as CEO of Primedia in August 2009, William Kirsh has spent several years developing and refining the strategic blueprint for a new company, Value+, as well as starting a series of acquisitions in line with this blueprint. Issie has partnered William in the new venture.
The merger is also likely to attract potential acquisition opportunities, because of the benefits the group will bring to these companies. FoneWorx had around R100 million cash on hand at year-end and can pursue further acquisitions.
Kirsh says the combined company will leverage technology, intelligence and value across both groups, which will tap into the consumer and corporate markets in areas such as loyalty programmes. There is currently very little in the way of corporate loyalty schemes in SA, but it is a $100 billion business in the US, he adds.
Kirsh explains that the R960 million earn out, which only kicks in from June 2016, will be averaged over the three years after that, and the delay gives everybody time to put business aspects in place so that targets are not rushed. He says if it is paid out, the new company will be making" buckets" of money.
"We'll all be happy if that gets paid. It's a nice earn out, but the company will be substantially more profitable."
In the most recent financial year, Value+ turned over R154.4 million, while FoneWorx's revenue gained 7.7%, to R98.6 million. The entire group is estimated to be worth R478 million.
FoneWorx has five operating entities, including BizWorx, which focuses on business-related products, and MediaWorx, which provides information and entertainment services. After the deal, which is subject to conditions, is wrapped up, the Kirsch family will own 49% of FoneWorx.
Potential
"Value" is increasingly becoming accessible to everyone due to the "plethora of cost-effective digital delivery platforms, enabled by new and innovative technologies", says a statement issued to FoneWorx shareholders.
Kirsh says Value+ has a "mix of established businesses and others with 'blue sky' potential. Furthermore, we are targeting big, growing and fragmented markets." Merging the two will allow the company to act as a consolidator.
Value+ believes that value should be delivered digitally, using either unique or appropriate technology. It has identified the telephone, loyalty card, store value card, Internet and mobile phone as its current chosen platforms for delivering value. "All people also have an innate need for value."
Technology to support each platform has been identified based on traditional call centres, interoperable technology at the point of sale, as well as USSD, a preferred technology for high-volume, low-cost menu-based communications through mobile networks.
In the announcement, Value+ says the phenomena of social networks straddle all these platforms. It has also decided that delivery is best supported by a data and analytics capability incorporating data segmentation and predicative modelling skills.
Value+ will employ 25 developers and is targeting both the consumer and corporate markets. It says its products are relevant across SA's demographic landscape.
FoneWorx says the companies are "highly complementary" and combining the two will enable Value+ to become the leading brand in SA for the design and implementation of loyalty programmes for companies, and to become the largest owner and aggregator of value categories that can be sold directly to the consumer.
Smith says "merging with V+ provides us with the asset base and expertise to grow faster than previously anticipated. We are also fortunate to be able to partner with William, who founded Primedia, and to leverage his skills and vast experience in establishing another new group in a fragmented and growing market."
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