DFA has dismissed speculation that a deal is currently on the cards where Internet Solutions will acquire the company.
While there has been interest from Internet Solutions to buy DFA, such a deal could prove disastrous for DFA’s business model should the two businesses be integrated.
DFA deals with most of South Africa’s large telecommunications players, and being an independent infrastructure provider is an important ingredient for its success.
Should Internet Solutions buy DFA, and incorporate it into its business operations, the independence of the company will be lost – and the business model will break.
Should a deal be negotiated in future, it will have to be structured in a way that will enable a wholesale and retail split of the two businesses.
DFA a valuable company
It is understood that no formal offer was made by Internet Solutions for DFA, but according to a Bloomberg report, Remgro and investment partner New GX Capital wanted R10 billion for the business.
According to a person with knowledge of the deal, R10 billion could be seen as a low offer for DFA.
The current book value of DFA’s fibre network in major metropolitan areas and on long-haul routes is in excess of R7.4 billion.
The company also has current annuity income in excess of R101 million per month, while the future value of the current annuity contract base is in excess of R18 billion.
DFA also has a healthy profit margin – its revenue for the six months ended 30 September 2016 was R734 million, with before-tax earnings (EBITDA) of R495 million.
With the explosion of fibre access in South Africa, in both the business and residential markets, DFA is well positioned to continue its strong growth.
Considering DFA’s book value, growing annuity revenue, and high margins, the business may well be worth more than R10 billion to the right buyer.