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Q1 2024 - (released May 2024)

SA's quarterly Private Equity & Venture Capital magazine

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AIIM targets fibre bullseye

by Michael Avery

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In a landmark private equity deal set to further the consolidation of the South African telecommunications sector, African Infrastructure Investment Managers (AIIM) – one of Africa’s premier infrastructure-focused private equity fund managers – has spearheaded a significant acquisition.

 

Along with partners, STOA (a prominent impact investor in infrastructure and energy) and Thebe Investment Corporation, AIIM announced their agreement to acquire Octotel, a leading fibre network operator in South Africa, from Actis, a global leader in sustainable infrastructure investment.

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This transaction not only signals a pivotal moment for Octotel, but also includes a strategic acquisition of a minority stake in RSAWeb, a focused ISP in South Africa, enhancing the consor-tium’s foothold in the digital infrastructure value chain. The move comes as part of a broader strategy to solidify a commanding presence in the region’s rapidly growing digital sector.

 

Octotel, recognised for its robust fibre-to-the-home (FTTH) and fibre-to-the-business (FTTB) services, has played a significant role in propelling the digital infrastructure in the Western Cape. Since its inception in 2016, Octotel has expanded to an impressive network that reaches over 350,000 homes and businesses, significantly up from 195,000 homes and 56,000 businesses when Actis acquired the platform in 2020.

Vuyo Ntoi, co-managing director of AIIM, highlighted the strategic rationale behind the acquisition, noting Octotel’s stable revenue streams and substantial market potential.

 

“Octotel is not only a dominant player in the Western Cape, but also presents an attractive growth trajectory supported by low unemploy-ment and a growing population in the region,” Ntoi explained during an interview with Michael Avery, editor of Catalyst Private Equity magazine, on Classic Business.

 

Under the new ownership, Octotel is poised for further expansion, with plans to extend its network reach and enhance service offerings. Ntoi elabora-ted on the potential areas of growth, “There is significant runway for expansion, especially in under-served regions and lower LSM segments, where the demand for reliable internet connec-tivity presents a substantial market opportunity.”

The acquisition also aims to leverage synergies between Octotel and RSAWeb, creating a more integrated service offering that can cater to a broader customer base. “Having a stake in RSAWeb allows us to have better insight into end-customer dynamics, which will inform our strategy for Octotel and help maximise the impact of our combined assets,” Ntoi added.

The completion of this transaction is subject to customary regulatory approvals, including scrutiny from the Competition Commission. However, given Octotel’s current market position and the competitive landscape, the consortium is optimistic about a smooth approval process.

 

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This is despite the fact that in a recent financial presentation, Remgro CEO Jannie Durand expressed significant concerns about the prolonged timelines for regulatory approvals in South Africa, particularly pointing out the inefficiencies of competition authorities. Durand’s comments come amidst ongoing struggles by Remgro’s majority-owned subsidiary CIVH to secure approval for a substantial fibre deal with Vodacom. This situation underscores the broader issue of regulatory delays undermining investor confidence and stalling business growth within the country.

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Durand highlighted the need for a more conducive business environment, with reduced bureaucratic hurdles. His frustrations are particularly poignant as Remgro and Vodacom prepare to defend their position in a three-week tribunal hearing scheduled for the upcoming months. The Competition Commission had previously advised against the deal, suggesting a block on Vodacom’s attempt to acquire a 30% stake in CIVH’s subsidiary, Maziv, which owns Vumatel and Dark Fibre Africa.

 

Speaking to shareholders, Durand emphasised that the protracted approval process injects a high degree of uncertainty into the market, affecting investor confidence and potentially impacting job creation.

Both AIIM and its partners are committed to driving not just economic, but also social and environmental benefits through their investments. Octotel has already made significant strides in this area, providing free internet connections to over 150 schools and transitioning its vehicle fleet to less polluting alternatives. This aligns with the broader objectives of the consortium to support sustainable and inclusive economic growth in South Africa.

Looking ahead, as digital connectivity becomes increasingly critical for both personal and professional purposes, this transaction positions AIIM and its partners at the forefront of South Africa’s digital transformation. “Joining forces with AIIM, STOA and Thebe marks an exciting chapter for Octotel and RSAWeb,” said Trevor Van Zyl, CEO of Octotel. “Together, we are poised to accelerate our mission of delivering cutting-edge connectivity solutions, bolstering economic growth, and fostering innovation across the region.”

 

This acquisition not only signifies a robust vote of confidence in South Africa’s digital infrastructure, but also demonstrates a clear commitment to enhancing connectivity and fostering long-term economic development in the region. The strategic move by AIIM and its partners is evidence that pockets of growth in Southern Africa, like telecommunications and broadband connectivity, continue to attract elevated levels of deal activity.

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