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Datatec has concluded a R7bn deal that injects fresh capital into its Westcon business while bringing in new equity partners that will help fund the business from here on. With operations in more than 50 countries, the group is one of the JSE’s largest ICT services firms. It operates predominantly from two main divisions, Logicalis and Westcon International, the latter distributing security and networking technology products.On Friday, Datatec — valued at R21.4bn — said it had entered into binding agreements with US private equity firm General Atlantic for the refinancing of Westcon — trading as Westcon-Comstor — as well as a minority investment in the unit, with an intended closing date of July 14.Proceeds from the various transaction components will generate cash proceeds to Datatec of about $434m (about R7.1bn). The business is experiencing significant growth driven by AI-enabled infrastructure investment and hyperscaler growth driving more network access; edge computing expanding with smarter, faster end-user devices; as well as threat landscape “growing exponentially”, which has fuelled demand for more cybersecurity solutions. Datatec’s CEO Jens Montanana said: “After assessing various strategic options, we have concluded a structure which we believe preserves and accelerates the winning Westcon-Comstor formula. World-class management, with one of the most experienced executive teams in the industry, will continue to take the business forward while broadening the strategy.”The first component of the transaction is a partial refinancing of the company’s existing $450m intercompany fixed-return shareholder loan advanced by Westcon International Ltd (WIL) to Westcon International Group Holdings Ltd (WIGHL) through a new six-year $375m senior secured debt facility provided by General Atlantic. Second is a cash equity co-investment by General Atlantic of $25m to acquire 5% of the share capital of WIGHL from existing shareholders. Third is the issue of shares in WIGHL to General Atlantic, structured to replicate the economic effect of 4% penny warrants and 8% at-the-money warrants. Fourth is a restructure of WIGHL’s management incentives. Montanana said Datatec “will retain control while partnering with General Atlantic, one of the world’s leading providers of capital, as both a minority investor and a lender to the business. This partnership will provide capital as required to support exciting opportunities for expansion in our sector.“The structure further embeds senior management in the business as shareholders.”The technology group has also announced a special dividend from the proceeds. Montanana and his team have been fighting to restore the value Datatec has lost over the years. The majority of those losses are attributed to its international operations, the bulk of its business, which have struggled over the past decade, resulting in a series of corporate actions to slim down the group.The group assembled a team from global investment bank Lazard to assist in unlocking value. The company said it is considering all options, including separate listings of Logicalis and Westcon International or selling to a larger group.As such, the group recently embarked on an acquisition spree, adding NetworkedAssets, a specialist in software development, network automation and observability solutions, to its stable. The acquisition, through Datatec subsidiary Logicalis Germany, became effective on March 24 and established a footprint in Poland.Westcon reported net assets of $127.7m and profit after tax of $66.8m in the year to end-February.Shares in Datatec gained the most in six weeks on Friday, up 5.87% to R89.97. Business Day
