Despite previously denying it would ever sell, MGX is to shed CCH stalwart company Software Futures to Paracon in a deal which will almost certainly be settled in cash
In a joint statement, MGX and Paracon announced they had signed a memorandum of understanding relating to a potential acquisition by Paracon of 100% of MGX Software Futures.
When Software Futures was resurrected a year ago, MGX described the move as a marketing exercise and at the time MD Derek Hughes said there was no intention of spinning off the division. He confirmed today that at the time there had been no intention to sell.
However Aletha Ling, MGX CEO strategy and business develepment, says a year later the strategic positioning of both MGX and Software Futures meant a new home had to be found for the business.
"We look at Software Futures today and it has been such a successful business with such a strong brand, but then you also look at the untapped potential and what one could unlock when you place it in the right situation.
"Such a small part of Software Futures is being leveraged within MGX and it is so different from what the group now does," says Ling
PSG Online IT analyst Uys van Straaten says the deal makes sense as MGX is concentrating on its services business and not software development.
"Software Futures tends to work on a contract-to-contract basis, while the service business which MGX is in operates on a recurring revenue model."
While no mention of price for the acquisition has been made, Van Staaten believes it would benefit both companies if they could conclude a cash deal.
"MGX needs the cash as it is still struggling with debt after the CCH acquisition. By the same token, Paracon is trading at a low price to earnings ratio and it will not want to issue scrip for the acquisition."
Paracon CEO Mark Jurgens says his company is definitely looking to fund the deal with cash rather than place Paracon shares at their current low trading level of 55c.
At the close of books in March this year, Paracon's cash on hand stood at R80.2 million.
Ling will not commit to a timeline for closing the sale, but cautions that the value should not be compared to the R60 million CCH paid for 60% of Software Futures in 1998, valuing the company at R100 million.
Ling, who will be staying with MGX rather than following her start-up company to Paracon, says: "It is my baby but hey, it has grown up, grown into a very robust and viable business. The best thing for Software Futures and its people, and for what it could become, is to be placed somewhere like Paracon."
Jurgens says he is excited by the deal and that Software Futures will add strategically to Praracon's existing offerings.
"Together with Paracon's existing business solutions division, Software Futures will account for about 50% of our revenue going forward," says Jurgens.
The Paracon chief says his company has no plans to radically alter the business or staff at Software Futures. "Software Futures is exactly where we want to be at the moment, it has good strategic partnerships and products which will fit with our business."
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