EOH holdings subsidiary, EOH Umthombo, has entered into a share purchase sale agreement with RIB Limited in which EOH will dispose of 70 percent of the issued ordinary share capital of Construction Computer Software (CCS) for R444.39 million.
RIB is a subsidiary of German-listed RIB Software.
The deal was struck at 8.5 times the forecast adjusted earnings before interest, tax, depreciation and amortisation (adjusted Ebitda) and the companies had entered into a reciprocal put/call option, in terms of a shareholders’ agreement, for the disposal of the remaining 30percent of CCS at the same multiple applied to December 31, 2022, adjusted Ebitda. EOH said this transaction was a significant milestone in its strategy to align with key partners which enable the scaling up of unique software businesses identified within the group’s fold.
“It is also a crucial step forward for EOH’s intellectual property (IP) division and RIB is the right partner to unlock CCS’ full potential, enabling both growth and internationalisation. Further the deal is in line with EOH’s strategy to build the “EOH of the Future” by reorganising the group into an investment holding company and strengthening the group’s capital structure,” EOH said.
EOH management said earlier this year in half-year results that it would unlock R1billion in cash through strategic partnerships and targeted disposals in order to reduce the group’s debt.
“The proceeds of this transaction will go a long way to creating a more appropriate capital structure and will be applied mainly to a reduction of the EOH’s debt and to a lesser extent, for working capital requirements,” the group said.
Peter Takaendesa, a portfolio manager at Mergence Investment Managers, said the disposal of 70percent of Construction Computer Software was a positive development for EOH given the priority was to reduce group debt to sustainable levels and the offer price is also reasonable in current market conditions.
“I am sure EOH would have sold much less than 70percent of this core IP business had it not been for the high group gearing. The reduced gearing will lower the pressure on EOH to sell targeted non-core assets at depressed prices and hopefully realise better value over time. It is a very difficult market to sell assets and unfortunately companies with high levels of debt have to sell their attractive assets to raise enough funds to repair their capital structure,” Takaendesa said.