AYO Technology published pre-listing plans which show that it has strong ambitions to grow its revenue from R479 million to R7.7 billion over two years. The strategy it plans to adopt consists of a strong M&A element, combined with a novel approach to team up with a global IT Service Provider.
BT SA Alliance
AYO Technology has entered into a strategic agreement with BT SA. This will see some of BT SA’s major clients transferred from BT SA to AYO Technology.
As a result of the addition of products and services from BT SA to their current portfolio, AYO believes that it can win more business from BT SA’s clients, while also tapping into the broader market. Should this alliance be successful, then AYO Technology will have demonstrated a new strategy of how to partner with global IT Services Providers to the benefit of both parties.
Who is AYO Technology?
They are a B-BBEE ICT Group, offering numerous end-to-end solutions to a range of industries.
The Group was established in 1996 and has evolved over time through continually adapting to the local and international ICT landscape. The process of adaptation was enabled by acquiring new businesses, partnerships and sourcing innovative technology within its existing portfolio.
AYO Technology, through its divisions, subsidiaries and partners, provides solutions to both the public and private sector within South Africa and abroad. Its private sector client base comprises mostly of blue-chip multi-nationals.
The Group maintains strong relationships and holds key value added reseller or supplier agreements with principles such as Nokia Siemens Networks South Africa (Pty) Ltd (“Nokia Siemens”), Cisco Systems, IBM, InterSystems Corporation, Microsoft Corporation and Riverbed Technology Inc, which provides the group with continuous access to up-to-date technology.
AYO Technology Revenue Ambition
They plan to grow their revenue from R479 million (Aug 2017) to R4.4 billion (Aug 2018) and to R7.7 billion (Aug 2019).
They plan to do this through:
- A strategy that consists of M&A;
- Transferring revenue from BT SA to AYO Technology; and
- Winning more business from existing BT SA customers.
AYO Technology believes that its empowerment credentials will be a significant competitive advantage that will enable it to win new business in the SA market.
The chart shows the dramatic rise in revenue forecast by AYO Technology for 2018 and 2019.
What is AYO Technology’s Revenue Strategy?
Two pillars underpin AYO Technology’s strategy:
Key to AYO’s strategy is the strategic agreement it concluded with BT SA in December 2017. This will see BT SA transfer various clients from its operations to AYO Technology. AYO Technology will earn 21% and 18% of its 2018 and 2019 revenue transferred from BT SA to AYO Technology.
In addition, AYO Technology believes that it can grow the services purchased from their existing customers and earn R860 million and R1 325 million additional revenue or 19% and 17% of its 2018 and 2019 revenue.
AYO Technology plans to aggressively engage in M&A acquisitions over 2018 and 2019. They plan to earn R2 billion from new acquisitions in 2018, and R4.4 billion in 2019. These revenue streams represent 47% and 56% of the forecasted 2018 and 2019 revenue. AYO Technology will use part of the capital raised in its listing to fund the acquisition of new ICT companies.
Thus, AYO Technology plans to earn R2.9 billion and R5.7 billion in new revenue from additional revenue earned by using BT customers and through M&A.
The planned AYO Technology revenue growth within the customer base outstrips the revenue growth in the customers ICT budget. AYO Technology acknowledges this and believes that it will win business from other service providers who currently service these customers. They claim that their stronger BBBEE level and the range of products and services, will enable it to achieve its revenue targets.
BT SA Revenue Analysis
The information provided in the AYO Technology Pre-listing document shows that BT earned R1.48 billion in the year ending August 2017.
Analysis of the revenue source shows that BT SA earned 66% of its annual revenue from three customers.
BT SA earned R115 million from the provision of telecommunications services to other telecommunications service providers.
The following chart shows the revenue distribution.
(Before the transfer of clients to AYO Technology)
The AYO Technology transaction valued BT SA at R3.3 billion.
What does this mean for the market?
AYO Technology plans to become one of the top ten IT Service Providers over the next two years. To achieve this, AYO Technolog needs to displace existing IT Service Providers along with winning a larger share of new business arising from market growth.
Should the AYO Technology strategy prove to be successful, then the rest of the IT Services Providers will experience revenue and market share loss.
In response to this new competitive threat, IT Service Providers will need to review their respective empowerment credentials to close the gap between a strongly empowered IT Service Provider, such as AYO Technology, and themselves. This is in addition to assessing how their service profile compares against that of a global IT Service Provider competing in the domestic market.