Hi-tech’s time comes round again
Yesterday, telecommunications firm Celcom joined the AltX board and next Monday SilverBridge also makes its AltX debut. The moves end a long drought in which faith in hi-tech stocks was justifiably so low that no companies listed while dozens delisted, were suspended or imploded into bankruptcy.
Now a tangible sense of optimism about the IT sector has seen the small private placements of Celcom and SilverBridge heavily oversubscribed.
“In the hectic days of the IT boom we probably had two companies listing in a week, but there are not many quality IT stocks left in the aftermath of the bust,” says SilverBridge CEO Jaco Swanepoel. “We have learnt a lot of lessons and companies are a lot more solid now.”
Celcom CEO Stefano Brachini agrees that there is a renewed faith in the hi-tech sector, making this the ideal time for a public debut. “AltX is hot. Investors are looking at the AltX favourably as a very attractive high-growth market,” he says.
Both companies are floating a bare minimum 10% of their stock that the AltX requires, with the managers reluctant to diminish their control.
SilverBridge is reverse-listing through Synergy, which used to sell accounting software and is languishing on the JSE as a cash shell. SilverBridge sold 27,3- million shares at R2 each, and will use R25m of that to buy SDT Financial Software Solutions as the first brick in its new empire.
Swanepoel co-founded SDT 11 years ago and is achieving 15%-20% year-on-year growth. “I’m the S in SDT,” he says.
Rather than SDT reverse-list in Fits own right, Swanepoel and his partners created SilverBridge as a holding company that will slowly buy other software developers.
The aim is to offer a range of technologies to complement SDT’s back-office software for the financial services clients, including First National Bank, Old Mutual and Metropolitan.
In the coming year it aims to bed down the listing, complete another acquisition and conclude an empowerment deal that will hopefully see SilverBridge gain a black chairman.
Taking the company public is essential to give it credibility and transparency, says Swanepoel. “Most of our customers are life assurance companies and to get new customers you need to become more transparent.”
Being listed will also help it find empowerment partners who often struggle to understand the “mystic workings” of IT players, he says.
Swanepoel admits he found the positive take-up of the reasonably pricey share issue “quite shocking”. Private investors were keen to invest substantial amounts and the issue was oversubscribed, he says.
Demand for Celcom was even more vigorous, with its offer of 23-million shares at R1 each 10 times oversubscribed.
Sanlam, Metropolitan Asset Managers and BoE are believed to be among the buyers.
“We are flattered that we have been really well received by the investment community,” says Brachini. “This is our dream — my brother and I started this business 12 years ago with a vision of going to the stock market.”
That almost happened in 1998, when Celcom began to piece together a mini empire with an eye to listing. Fortunately, that never happened, sparing the brothers from the IT bloodbath in the subsequent years.
Celcom sells cellphones, airtime and data transmission services for Vodacom, MTN and Cell C, running the V Cellular outlets and suppling retail customers including Dion and Game.
Brachini believes it can capitalise on rampant growth in the cellular industry and rising demand for data downloads.
To do that it needs the kudos of being listed and the associated ability to raise cash. Only 10% of its shares were placed to ensure a large pool was left untouched for future acquisitions.
Takeovers too large to fund from the balance sheet will be funded by issuing stock, and if the share price rises, Celcom could buy far larger businesses than it could as a private entity.
Listing will also add credibility and firms attempting to trade in Africa need a profile that people trust, says Brachini.
It has a market cap of R204m, and a revenue to June 30 of R465m generated a profit of R18,1m. The Brachini brothers forecast a revenue of R684m and R22m in profit next year.
Celcom is already 19,3% held by black investors led by Marcel Golding, the acting CE of e.tv, and Franklin Sonn, a former ambassador to the US. So the extra pressure of being listed does not faze Brachini, as Golding and Sonn already help to ensure that corporate governance is key.
“We have already put pressure on ourselves for 12 years to achieve good results and follow the business plan, so nothing is going to change,” he says.
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