ADAPT IT – Resilient Adapt IT Consolidating for Future Growth

The ongoing story that is Africa’s improving status as an IT boom market is bringing hope to many investors and businesses active in the space. Over the past decade, many African nations have established themselves as IT hubs, with innovative ideas emanating from populations with real needs that can be addressed through the application of novel tech ideas. South Africa, Kenya, Nigeria, Zambia, Ghana, Angola and Uganda have all displayed the type of ambition in the IT space that will undoubtedly bring results for companies and people.

The ideas are different from those in advanced first world economies, but that does not mean they are less valuable. Look at M-Pesa in Kenya – the go-to example of an idea that has utilised technology to solve a desperate need, creating a world-famous business.

South Africa is the IT industry’s leader on the continent with the largest market by value and premier status in mobile software, security, and electronic banking services. Many of the world’s big IT businesses base their African operations out of South Africa, with many using the country as a gateway to the sub-Saharan region – where major growth opportunities still exist.

The burgeoning financial sector as well as government institutions make up the group of big IT spenders and, with the onset of the Fourth Industrial Revolution, spend looks set to grow in the future as more and more organisations and institutions move towards digital operations.

In January, President Ramaphosa said: “Just as the First Industrial Revolution has been helpful to the nation, we welcome the Fourth Industrial Revolution. We must continue to focus on the achievement of reading outcomes in the early grades, rolling out the subjects of the future such as robotics and coding, while giving our learners a choice of learning streams that best suit their capabilities. They are part and parcel of the skills set necessary to meet the demands of a changing economy and the future of work.”

Worth around USD$7 billion, the IT industry is certainly important to the South African economy, which has been ailing for most of the past decade.

So, for those active in the space, now is the time to for investment in the future while protecting market share and crafting a plan to take advantage of the opportunities that do exist.

One of the leaders in the industry is Adapt IT. A provider of leading specialised software and digitally led business solutions, this is a business that has traditionally grown through acquisition.

ACQUISITIVE GROWTH

After establishment in its current form in 2007 (following the merger of InfoWave and Adapt IT), the company listed on the Johannesburg Stock Exchange in 2008. In 2009, the company acquired Integrated Tertiary Software (ITS) which helped it enter the education market and grow into other international markets. In 2012, Adapt IT moved into the BPO sector with the acquisition of Swicon360. The following year, the energy industry was targeted when Aquilon was acquired. From 2013 through to 2019, a swathe of new companies were added to the group – including AspiviaUnison (2014), CQS (2016), EasyRoster (2016), Micros SA (2017), LGR Telecommunications Group (2018), Conor Group (2019) and Wisenet (2019).

The result of this impressive decade of work is Adapt IT becoming a software provider to over 10,000 customers in education, manufacturing, energy, financial services, communications and hospitality worldwide.

In October, the company announced its results for the year. Adapt IT CEO, Sbu Shabalala described the numbers as ‘resilient despite tough trading environment’.

Revenue from continuing operations increased by 14% to R1,438 billion. EBITDA from continuing operations improved by 3% to R229 million. Cash generated from operations was R179 million.

“While the results for the year under review showed moderate top-line growth, I am pleased to say that in a year of global macroeconomic challenges, Adapt IT made great strides in positioning itself for the next growth phase, with a strategic focus on geographic positioning, strengthening sales capabilities and ensuring that all the divisions are streamlined,” detailed the CEO.

Shabalala, who founded the business as a black-owned SME, stated that the 2019 results were positive considering that the company has been in something of a consolidation period after the acquisitions of Conor and Wisenet, and the move into a new Johannesburg campus which was fast-tracked to bring together the company’s people from different offices all over Gauteng.

“This has realigned the teams, enhanced group culture, will facilitate better cross-selling and standardise processes that are critical for sustainability. Adapt IT has been consolidated in the Johannesburg campus for 16 months and is already experiencing an immensely positive employee engagement across the organisation.”

GLOBAL AMBITION

The acquisitions that the company strategically entered since 2017 have helped it to grow exposure in new geographic territories including Europe, Australia, Asia-Pacific and Africa.

However, the South African market remains the largest contributor to the group, and with a reported uptick in activity, Adapt IT is well placed to capitalise.

“This presents a flicker of good news as the strong customer focus, sector specialisation, skills and software that the group has at its disposal will assist in ensuring the operations take advantage of these green shoots,” said Shabalala.

In January, President Ramaphosa stated in a weekly newsletter that moving poorly qualified persons to the top jobs in State Owned Entities will stop. “We are committed to end the practice of poorly qualified individuals being parachuted into positions of authority through political patronage. A major focus of our work this year is to restore our SOEs to health.”

This is music to the ears of many of the country’s businesses, especially those in IT who attract a major chunk of revenue from government spending. A more stable, resilient, reliable and predictable government leadership programme is vital for sustainability.

Shabalala is excited about growth opportunities and reminded of the importance of sticking vehemently to the company’s carefully crafted strategy.

“The South African market remains challenging in the short term. However, Adapt IT has built a strong, well-diversified foundation enabling us to target growth in the rest of Africa and Australasia with leading software as we continue to pursue our sustainable growth strategy,” he said at the start of 2019. 

“Adapt IT is poised to take advantage of its underlying diversification,” he added in October. “This can be done by mining the current client base more effectively, focusing on sales in a cohesive manner, carefully expanding on the Pan Africa and Asia Pacific strategy and ensuring that all of this is done bearing good capital allocation in mind.”

For Shabalala, and for Adapt IT, things are looking good. Away from all of the noise around economic uncertainty, government disruption, SOE implosion, and legacy infrastructure issues in South Africa, Adapt IT is well positioned to continue delivering services across multiple industry sectors and now across multiple geographic markets. Shabalala remains optimistic.

“Adapt IT has over the years given shareholders a lot of returns. As an investor myself I always look for a diversified portfolio and when you look at where ICT is at this point, there aren’t a lot of options for local investors and therefore we’re happy for Adapt IT to give that option. I mean, years ago we had less than R100m EBITDA, we’re on R223m now, we’ll get up to R400m and at some point we won’t be a small cap, but we will remain listed,” he told Financial Mail.