Altech has entered the Internet delivery market with the acquisition, announced yesterday afternoon, of 100% of Lateral Technology Concepts, an Internet service provider (ISP) and IT company.
"We have been interested in purchasing an ISP for some time," comments Altech CEO Craig Venter. "As a result of the changed regulatory landscape, moving into internet service provision is a natural extension of Altech's existing business.
"Through the strong distribution footprint in Altech and in particular Altech Autopage Cellular, which has approximately 1-million corporate and retail clients, we are in a position to rapidly scale Technology Concepts by introducing new Internet services to these clients."
This acquisition by Altech enhances the ability of Altech Autopage Cellular to provide data services to its voice cellular subscribers, recognising the developing convergence of voice and data in the telecoms arena and the increasing demand for bundled services.
Altech will utilise its cash reserves to fund the maximum purchase price of R45-million. An amount of R7,5-million will be paid initially, and the remaining maximum R37,5 million, will be released to Technology Concepts shareholders in terms of an earn-out mechanism over two years based on after tax profit targets for years ending February 2010 and 2011 being achieved. If all profit warranties are met, the effective (PAT) PE multiple to be paid by Altech will be 5.23.
"About 64% of Technology Concepts' business is annuity based and, although it is within a competitive market, is showing high profit growth. The acquisition thus ensures a regular and consistent income stream for Altech which will positively affect our headline earnings per share," says Venter
Founded in 1999, by Wayne de Nobrega, Technology Concepts, an established Internet technology services business and corporate Internet service provider, offers a full range of ISP products, services and solutions which are developed and managed in-house.
The company has built its own hosting infrastructure and with a client base of 270 customers, consisting mainly of SMEs and corporate customers, it was a natural selection for Altech's strategic diversification plans. Although Technology Concepts' focus has been primarily on high margin and high average revenue per user (ARPU) customers, it also has the expertise to drive a retail offering.
The company consists of two divisions: ISP & Support Services; and Web Software Development
The ISP & Support Services Division generates annuity income from the provision of internet access, MPLS networks, managed firewall services, hosted and archived email, data centre hosting and automated off-site backups.
The Web Software Development division offers development expertise in internet, intranet and web based applications.
In addition to these two divisions the company sells hardware, software and technical services that are needed to support these various activities.
Technology Concepts' distinguishing product is its Channel Bonding technology which was launched 20 months ago and which combines multiple ADSLs to create a single, virtual high speed connection, enabling customers to have high bandwidth at a fraction of the normal cost associated with a leased line solution. The deal ensures that Altech acquires full Intellectual Property Rights ("IPR") through Technology Concepts.
To preserve current efficiencies and standards, Altech will retain existing Technology Concepts management and staff whilst it will provide supporting administration services and strategic direction to the company.
The acquisition is a part of Altech's overall data strategy, taking into account its recent attainment of an I-ECNS license and the imminent landing of the Seacom submarine cable in South Africa and then continuing up the African east coast. It complements Altech's extensive data network and ISP operations in East Africa and is a reflection of Altech's expectation that there will be explosive growth in the demand for data services in Africa.
"Acquiring Technology Concepts allows Altech to obtain significant experience in ISP and data management. We will also have the ability to export the systems imbedded in Technology Concepts e.g. the billing platform to other geographies where Altech is present, like East Africa. This transaction forms part of an overall solution to bring data connectivity to the end customer via copper solutions, fibre and wireless network links," says Venter.