South Africa's Allied Technologies Ltd is in talks to pay up to $60 million for unlisted Kenyan IT firm Symphony, according to a person familiar with the matter, to help revive its struggling business in fast-growing east Africa.
Johannesburg-based Altech, a $742 million telecoms and IT firm, has been in talks to buy Symphony for several months and is nearing the end of its due diligence, said the source, who declined to be identified because the information is not yet public.
Altech is likely to pay between $50 to $60 million for Symphony, giving it a price-to-earnings ratio in the teens, the source said.
Buying Symphony, which also has operations in Uganda, Rwanda, Burundi and Ethiopia, would augment Altech's existing business in a region where it has struggled.
I think it would be a good fit, said Dirk Noeth, an analyst with Avior Research in Cape Town.
It helps them expand their services base from just being a fixed-network provider to a system integrator as well... You need a business like this to really drive it further.
Altech in September replaced the head of its underperforming Kenyan data unit and named a new team to lead its east African operation. Turning around the east Africa business is a top priority, Altech said then.
South African firms are increasingly looking to do deals beyond their crowded home market to tap rising disposable incomes in poor but fast-growing regions such as east and west Africa.
The deal would be one of the biggest acquisitions made by a South African company in Kenya, according to Thomson Reuters data.
It would also be the second-largest M&A deal in Kenya this year following East African Breweries' $225 million buy-back of an asset stake from SABMiller
The deal also highlights the growth potential for IT companies in Africa. Japan's Nippon Telegraph and Telephone Corp last year paid $3.2 billion for South Africa's Dimension Data to expand in emerging markets.
Altech is a diverse business whose operations include telecoms, electronics and IT services. In South Africa it is best known for its Altech Netstar unit, which tracks and recovers stolen cars.
Symphony provides IT consulting and services including hardware, software and networking. It is owned by the Da Gama Rose Group, led by prominent Kenyan businessman Horatius da Gama Rose.
Its partners include IBM, Cisco Systems, Dell Inc, General Electric Company, Microsoft Corp, China's Lenovo Group and Huawei Technologies , according to its website.
Altech CEO Craig Venter declined to comment on the deal in an e-mailed statement to Reuters.
As a listed company on the Johannesburg Stock Exchange, any announcements with regard to mergers or acquisitions are made in accordance to JSE listing requirements. As such, Altech has no comment on this matter at this time, he said.
No one was available for comment at da Gama Rose's office.
Altech shares gave up some gains immediately following the Reuters report, and eventually turned negative. The shares were down 1.8 percent at 51.75 rand, having been up as much as 2.8 percent before the news of the deal.