JSE-listed Consolidated Infrastructure Group (CIG) has acquired Schneider Electric’s Conlog business – a Durban-based developer, manufacturer and distributor of prepaid electricity meters, smart meters and related software applications – for up to R850-million.

“Conlog is an ideal extension to our primary electricity infrastructure operation Conco and further diversifies our earnings into a fast-growing sector.

“Demand for prepaid electricity is increasing exponentially, particularly across Africa, and we believe this transaction offers the group significant upside potential,” says CIG CEO Raoul Gamsu.

The purchase consideration includes an initial R700 000 payment to Schneider Electric on closing of the transaction, as well as a deferred payment of between R50-million and R150-million, of which the first R50-million is guaranteed, depending on Conlog’s 2016 adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda).

Both the initial payment and the R50-million guaranteed deferred payment will be funded from the proceeds of a R750-million clawback rights offer to be undertaken by CIG.

Any payment beyond that will be funded using CIG’s internal cash or borrowing facilities.

Gamsu points out that Conlog’s solutions are developed specifically for cost-effectiveness and ease of deployment and adds that the R550-million top line business is well-managed by a young and dynamic management team and should dovetail seamlessly into CIG’s decentralised operations model. 

“Conlog is, importantly, less capital intensive than existing power operation Conco and is strongly cash generative, which will strengthen our Power division’s business and financial model,” says Gamsu. 

The inclusion of Conlog in CIG is expected to raise group Ebitda by more than 35% over the 2015 financial year.

In addition, Conlog’s and CIG’s geographic revenue split align well. More than 50% of CIG’s profitability is generated outside South Africa, while Conlog’s footprint across more than 20 African countries – with pole position in Southern and East Africa – generates 60% to 70% of its revenue outside South Africa.  Locally, Conlog is also one of the top suppliers of prepaid electricity meters.

Conlog is also considering expansion into the Middle East and West Africa.

CLAWBACK RIGHTS OFFER
CIG will only undertake the clawback rights offer to raise R750-million once all suspensive conditions to the Conlog purchase agreement are fulfilled.

Investec Bank and Pinecourt Advisors have agreed to underwrite R500-million and R250-million respectively of the rights offer.