Dimension Data has sold its iconic office complex in northern Johannesburg, known as The Campus, to a consortium of black women investors.
At the same time, it will set aside 15% of its equity in its South African business, called Dimension Data Investments South Africa, for a new empowerment-based staff share scheme, which will also include selected white and black senior managers of the IT group.
The deals together will give Dimension Data 51% black ownership recognition under convoluted empowerment rules (though parent Japan’s NTT will continue to control the asset). This will put the group in a stronger position to bid for major contracts, especially in government and the financial services sector, said Dimension Data Middle East & Africa CEO Grant Bodley in an exclusive interview ahead of the announcements on Wednesday.
The Campus is being sold to a grouping known as the Identity Property Fund, led by investment banker Sonja de Bruyn Sebotsa. Sebotsa is the founder of Identity Partners, a women-led investment holding company that has businesses in corporate finance advisory, fund management, and mining and resources.
TechCentral first reported about Dimension Data MEA’s plan to sell the Campus in September. The group, which includes assets such as Dimension Data Systems Integration, Internet Solutions, Merchants, Britehouse and the new Dimension Data Security business (also being unveiled on Wednesday), will continue lease space from the Identity Property Fund for a period of at least eight years.
Together, the sale of The Campus and the staff empowerment share scheme will raise Dimension Data from a level-4 to a level-2 BEE contributor, according to Bodley. It will now work to get level-1 status by 2020.
Dimension Data’s last BEE partner relationship, with Andile Ngcaba’s Convergence Partners, broke down in acrimony and led to Ngcaba taking the company to court to claim monies he said he was owed. However, he lost two court challenges. “By and large, our relationship with Andile was quite good for the 12 years (that the agreement ran),” Bodley said. “It was a sad ending to what was, 99% of the time, a very good relationship.”
Bodley said the latest developments are part of a plan to ensure Dimension Data is “relevant to the local market” and can participate in big tenders, which it couldn’t previously do because of its BEE rating.
Under the employee share option scheme, the company has allocated units to qualifying staff, which will vest in three years and pay out in seven years, subject to growth in equity value. Outside selected top managers, only black staff will be able to participate. The scheme has been vendor-financed at a discounted rate.
“This is not a remuneration scheme. It’s part of our commitment to transformation,” Bodley said. It will continue to remunerate and incentivise all staff in other ways, including in skills development, to ensure it attracts and keeps top talent, both black and white, he said.
Though Dimension Data won’t disclose the value of the sale of The Campus, Bodley said it will use the proceeds to increase its presence in the South African market and pursue acquisitions. “Over the next period, we want to reintroduce Dimension Data to the local market. A lot of our focus has been on globalisation and we didn’t necessarily focus enough on the local market.”
It is currently exploring “three or four” acquisitions in the MEA region “as we look to get scale in certain geographies or expand in areas like security, DevOps and micro services” in Britehouse.
Though the group is not considering introducing a new empowerment equity partner yet, it may consider this down the line. Bodley said “a lot” of investors have approached him and executive chairman (and group co-founder) Jeremy Ord about a deal. “For us, it was important – with the war for talent – that we get employees benefiting from their efforts in the share option scheme; I think that’s a better way,” he said.
“It shows commitment to our staff, but that’s not to say there isn’t room for strategic partners,” he added. “As ‘continuing consequences’ (explained in detail later in this article) fall away, we can increase the scale of the staff scheme or bring in strategic partners. We haven’t decided which route to take yet – we have two-and-a-half years until the first set of continuing consequences fall away.”
As for a rumoured JSE re-listing (it delisted after the NTT acquisition), Bodley said this is not on the cards in the short term. “Dimension Data MEA is 100% owned by NTT … but going forward there is consideration around the appropriate shareholding for NTT in the African assets.”
He said NTT remains “absolutely” committed to the business.
How Dimension Data has climbed the scorecard rankings, from level 4 to level 2, is complicated.
In 2016, the generic B-BBEE codes were amended to provide for, among other things, something known as “continuing consequences”, which dealt with the so-called “once empowered, always empowered” principle.
Continuing consequences state that a company can claim 40% of ownership points from previous black ownership transactions after the shares have been sold by the black shareholders, but only for a period totalling the same name of years that the shares were owned by the black shareholders and provided that the shares were owned by those shareholders for a minimum period of three years and that value was created in their hands.
Dimension Data’s 2019 ownership scorecard has benefited from previous transactions, which were concluded in 2004 and in 2012, Bodley explained.
Then, under the “ownership” element of the BEE scorecard, there is something called the “flow-through principle”, which traces ownership measurement through the chain of ownership to a natural black person (and not a black-owned company).
A modified version of the flow-through principle, known as MFP, applies to a black-owned or -controlled company (the MFP company) in the ownership structure of a measured (broad-based BEE-verified) entity and allows for the participation of individuals that are not black at one tier of the chain of ownership and enables the MFP company to be treated as if it was 100% black owned — provided that the MFP company is at least 51% black owned and the MFP principle is applied only once in the chain of ownership.
Bodley said 51% of the participants in the employee share option plan will always be black employees, thus qualifying the scheme to be treated as if its participants are 100% black.
Sale of assets
On the sale of The Campus, the BEE codes cater for the sale of shares to qualify for ownership if certain criteria are met, and these include a sale-of-assets transaction. This must:
- Result in the creation of viable and sustainable businesses in the hands of black people;
- Result in the transfer of critical and specialised and managerial skills and productive capacity to black people;
- Involve a separately identifiable related business that has a) no unreasonable limitations or conditions with regard to its clients and b) clients or suppliers other than the seller;
- Be an arm’s-length operational or outsourcing arrangement between the seller and the separately identifiable business; and
- Be subject to a valuation by an independent valuation expert.
“Dimension Data’s sale of The Campus has met these criteria and as such it is able to include the resultant points in its ownership score,” Bodley explained. — © 2019 NewsCentral Media