AEEI brings forward Ayo Technology listing
African Empowerment Equity Investments (AEEI) will be looking to raise a hefty R4.3bn when it separately lists subsidiary Ayo Technology on the JSE next week.
Initial expectations were that AEEI would only list Ayo, which comprises a number of telecoms and information technology interests, at the end of the first quarter of 2018. The earlier-than-expected listing is also surprising in light of the sentiment-eroding developments at large technology group EOH, which has seen its shares battered on the JSE in recent months.
The amount of capital to be gathered by Ayo will raise eyebrows considering that AEEI, which separately listed Premier Fishing & Brands in March 2017, only carries a market capitalisation of about R2.9bn.
Although not closely watched by mainstream investors, it seems the listing and capital raise is premised on Ayo embarking on an aggressive acquisition strategy.
Officially, Ayo reckoned the South African technology sector was experiencing market consolidation to deal with market demand for turnkey service providers. Ayo believed the local market lacked an empowered service provider, it said in a prelisting statement. "Thus, in light of the current market conditions and regulation pertaining to black economic empowerment in SA, Ayo Technology is well positioned to capture part of the growing ICT spend."
Ayo will pitch almost 100-million shares at R43 per share in a private placement. Prior to the listing Ayo will issue 31.7-million shares to various broad-based empowered consortiums. AEEI’s stake in Ayo will fall from 69.55% to about 49%.
The prelisting document said Ayo’s growth strategy would be boosted by the capital raised in private placement, indicating that a number of target companies had already been engaged for possible acquisition.
But arguably the most intriguing part of the Ayo listing is the company’s relationship with British Telecoms SA (BTSA), in which AEEI holds a strategic 30% stake. The prelisting document notes that Ayo will subscribe for 99% of the issued shares of Kilomix Investments, which holds 30% of the issued shares of BTSA. Ayo will also enter into an alliance agreement to be BTSA’s strategic partners in SA.
This means Ayo and BTSA will chase opportunities with new clients when there is scope for co-operation or complementary products and services.
The arrangement is most likely to lead to Ayo acting as the prime contractor, with BTSA serving as the subcontractor, and both firms will be allowed to market each other’s products and services in SA on a "resell" basis or as part of a bundled solution. It is even envisaged that some BTSA employees could transfer to Ayo.