Playing it safe
EOH announced the purchase of Aptronics for R194m to be paid half in cash and half in shares. The deal is very small considering EOH has a market cap of almost R20bn and revenue in the last six-month reporting period of just over R6bn. Aptronics was doing R500m revenue per year so it adds some R250m for each six-month period. The profit warranty is only R65m after tax over two years, adding some 3.5% to profit. This is the challenge facing EOH – acquisitions of this size don’t move the needle and it is much harder to make large deals that will significantly boost profits. So growth becomes more organic and as such will slow down. EOH is still a great company, but the new exciting growth option in this space is now Adapt IT, which, being much smaller (less than a tenth of the size of EOH), can still make deals that seriously move the needle, hence growing by acquisition and in an organic way.