Cu­ri­ouser and cu­ri­ouser

The de­par­ture of the com­pany’s two top ex­ec­u­tives deep­ens the mys­tery over why Ayo’s deal with BTSA is tak­ing so long

Financial Mail - - AYO TECHNOLOGY - Marc Hasenfuss hasen­fussm@ti­soblack­

Has there ever been a bet­ter ex­am­ple of a cor­po­rate snafu on the JSE than the events un­fold­ing at re­cently listed Ayo Tech­nol­ogy So­lu­tions? Such devel­op­ments would scare the skinny jeans off the hardi­est punter.

Most alarm­ingly, CEO Kevin Hardy and chief in­vest­ment of­fi­cer Siphiwe Nod­wele — both ap­pointed only in De­cem­ber — re­signed with im­me­di­ate ef­fect last week.

The mar­ket is watch­ing in mor­bid fas­ci­na­tion to see how a com­pany that was punted to grow via ac­qui­si­tion and ag­gres­sive mar­ket­share gains will find strate­gic trac­tion with­out its two top ex­ec­u­tives.

The res­ig­na­tions of Hardy and Nod­wele fol­lowed hard on the heels of a shake-out of the nonex­ec­u­tive di­rec­tors — seem­ingly at the be­hest of 29% share­holder the Pub­lic In­vest­ment Corp (PIC).

Though the PIC ap­pears to have gained board­room influence, new nonex­ec­u­tive chair Wal­lace Mgoqi has links to African Eq­uity Em­pow­er­ment In­vest­ments (AEEI), which holds a 49% stake in Ayo. Mgoqi, a for­mer chief land claims com­mis­sioner and Cape Town city man­ager, was pre­vi­ously chair of Sekun­jalo In­vest­ments, the fore­run­ner of AEEI.

Mar­ket gos­sip sug­gests Hardy and Nod­wele have taken the fall for Ayo not be­ing able to timeously con­clude a deal to buy a 30% stake in Bri­tish Tele­coms SA (BTSA) from AEEI for R950m.

The R950m pro­ceeds were likely to be paid out, in part, as a spe­cial div­i­dend to AEEI share­hold­ers — the big­gest of whom, by far, is me­dia mag­nate Iqbal Survé.

Oth­ers main­tain Hardy and Nod­wele sim­ply could not stand the heat of per­sis­tent me­dia scru­tiny, es­pe­cially around crit­i­cal ques­tions such as the PIC’S par­tic­i­pa­tion in Ayo’s prelist­ing cap­i­tal-rais­ing ex­er­cise.

There is spec­u­la­tion that BTSA has been spooked by the “noise” around the Ayo list­ing and might wish to keep its dis­tance for now.

The reason for the de­lay in con­clud­ing the BTSA deal, of course, may be in­nocu­ous.

Since AEEI ac­quired the BTSA stake in 2008, vir­tu­ally no fi­nan­cial in­for­ma­tion has been dis­closed around the busi­ness, pur­port­edly for strate­gic and com­pet­i­tive rea­sons. The per­ti­nent ques­tion at this junc­ture is whether Bri­tish Tele­coms (BT) is keen, or even will­ing, to al­low Ayo to pub­lish “sen­si­tive” fi­nan­cial in­for­ma­tion in a deal cir­cu­lar.

In­sid­ers are adamant the AYOBTSA deal is still on the ta­ble on the same terms, and that the de­lay merely re­lates to longer-thanex­pected ad­min­is­tra­tive ex­changes be­tween Cape Town and BT’S of­fices in Lon­don and Hong Kong.

In­di­ca­tions are that the deal should be com­pleted be­fore the Christ­mas hol­i­days.

But there are lin­ger­ing wor­ries around the de­lay. The deal should, on pa­per, have been a straight­for­ward one be­tween two re­lated par­ties. What is more baf­fling is that Hardy is a for­mer MD of BT Africa and Nod­wele — ac­cord­ing to the Ayo prelist­ing state­ment — over­saw trans­ac­tions worth more than R1bn dur­ing his ten­ure at tech­nol­ogy gi­ant EOH.

If these con­nected ex­ec­u­tives could not close the BTSA deal, then what hope does act­ing CEO Naahied Gamiel­d­ien have?

Tan­gi­bly, the de­lay will have a bear­ing on prelist­ing profit fore­casts made at the time of Ayo’s list­ing on the JSE in Jan­uary.

In short, the con­tention was that BTSA would ben­e­fit from Ayo’s strong em­pow­er­ment cre­den­tials, while Ayo would ben­e­fit from BTSA’S blue-chip client list.

The prelist­ing state­ment out­lined this clearly: “It is an­tic­i­pated that cer­tain of BT’S ex­ist­ing pri­mary cus­tomers will move to Ayo Tech­nol­ogy, in or­der to lever­age off Ayo’s pref­er­en­tial pro­cure­ment po­si­tion, as a re­sult of the com­pany be­ing 51% black owned and 30% black-women owned.”

Ayo pen­cilled in rev­enue of R4.4bn and at­trib­ut­able prof­its of R750m (242c a share) for the year to end Au­gust. A break­down in the prelist­ing doc­u­ment showed that ex­ist­ing BTSA busi­ness would gen­er­ate R944m, with an ad­di­tional R860m gen­er­ated from its stronger em­pow­er­ment sta­tus.

Ayo’s ex­ist­ing busi­ness was ex­pected to gen­er­ate R549m in rev­enue but would score an­other R2bn in top line from “ad­di­tional mar­ket share (em­pow­er­ment, sales re­struc­ture, ac­qui­si­tion strat­egy)”.

For fi­nan­cial 2019 Ayo pro­jected rev­enue of R7.7bn and more than R1bn at bot­tom line. The break­down showed BTSA’S ex­ist­ing busi­ness gen­er­at­ing R1.4bn, with the ex­pected rev­enue in­crease through em­pow­er­ment be­ing R1.3bn. Ayo’s ex­ist­ing busi­ness would gen­er­ate R671m and add a whop­ping R4bn from ad­di­tional mar­ket share.

These were huge stretches in top and bot­tom line, and they ob­vi­ously hinged on Ayo not only win­ning new con­tracts but mak­ing size­able ac­qui­si­tions.

Ayo raised about R4.3bn ahead of its list­ing, but has not made any sig­nif­i­cant ac­qui­si­tions aside from a re­cently con­cluded con­tract with en­ergy gi­ant Sa­sol. So scratch those rev­enue and profit fore­casts — com­pletely.

In­sid­ers think two or three deals could be an­nounced in the next few weeks. But with the BTSA deal un­fin­ished and key ex­ec­u­tive seats empty, even a flurry of ac­qui­si­tions is un­likely to pla­cate a scep­ti­cal mar­ket.

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