JSE-listed global IT distribution and services business Datatec, flush with US$170m in net cash, is on the prowl for acquisitions, especially in Asia.
Datatec CEO Jens Montanana says the worst of the recession is over, adding that there are strong signs of a recovery in IT spending.
Montanana, speaking to TechCentral following the release of the group’s interim results for the six months to 31 August 2009, says that in the second half of the financial year Datatec should enjoy both sequential and comparative (year-over-year) growth.
Datatec’s revenue fell to $1,8bn in the half, down from $1,9bn in the comparative period. Earnings before interest, tax, depreciation and amortisation dropped to $44,6m from $71,4m previously. However, the group’s operations generated a healthy $184m in cash, from $66m before.
Montanana says IT spending in the UK remains “soft” and a recovery in the US is “patchy”. However, everything is pointing to a pick-up, he says. Chip-maker Intel’s strong results, released on Tuesday, indicate a return to spending by companies.
Though trading conditions are still “challenging”, they are becoming “more predictable and we are confident of a return to overall revenue growth in our traditionally stronger second half”.
Montanana says Datatec could use as much as $100m of it net cash to pursue deals. “In keeping with our recent successful advances in Brazil and India, we are now actively reviewing a number of potentially strategic initiatives in China and parts of Asia,” he says.
Valuations have fallen significantly, Montanana says, meaning it will be cheaper for Datatec to snap up quality assets. He says private equity players, which had driven up valuations, have become net sellers of technology businesses.
Spiwe Chireka, an IT analyst at Frost & Sullivan, says Datatec’s broad geographic spread, which it continues to grow, is proving to be a strong competitive advantage.
She says the group’s intention to move into China is significant. “The risk of moving into this market is sizeable due to the relatively high barriers to entry,” Chireka says. “However, no-one can deny the potential it offers due to the huge addressable market. As far as I know, Datatec would be the first among its key SA competitors to enter this market, so all eyes will be on the group to see how it fares.” — Duncan McLeod, TechCentral