Two roads converge- Michael Avery

In Customer Engagement, Customer Experience, Downloads, Events, Featured on App, Loyalty & CRM, Multichannel, Social media by Bianca Wiener

Almost two decades after the internet and other modern communications technologies took the information age forward in one quantum leap, media companies the world over are still grappling with the question of how to make money from convergence The leader in this field, in South Africa at least, has undoubtedly been Naspers boss Koos Bekker. It appears the Kirsh family is looking to apply its Midas touch to the conundrum too.

Michael Avery

The technology revolution has centred on whether to make content freely available to non-hard copy subscribers or fence it off behind a pay wall.  Publishers appear to be shifting towards the latter option, with  the national flagship daily business newspaper, Business Day, unveiling its plans for a paid viewing experience in August.

But convergence doesn't start and end with how to get consumers to pay for content. Technology offers a range of avenues for adding value to the established advertising model. And it appears that this is behind the Kirsh interest in IT service provider FoneWorx.

FoneWorx, a relatively small Telecoms and IT solutions provider, announced in July that it had entered into back-to-back transactions to repurchase the Industrial Development Corporation's (IDC) 30% shareholding in the Group for a price of between 130 and 139 cents per share in order to on-sell those shares to Isaac (Issie) and William Kirsh at the same price, with a value of between R53m and R56,7m.

Issie Kirsh, Nathan Kirsh's younger brother, was the founder of Primedia's 702 radio station. Issie's son William was CEO until his resignation in 2009 . Issie also founded RAM FM (West Bank), a radio station designed to encourage peace in the Middle East. It had offices in Ramallah and Jerusalem before being shut down in August 2008.

William and the Mineworkers Investment Corporation led a consortium in a private equity buyout of Primedia for roughly R6 billion in 2007.

The transaction marks what the company calls "the first step in the development of a strong strategic relationship" between FoneWorx and the Kirsh Family's interests. "It is envisaged that there will be a new strategic direction for the Group, and it is considered that FoneWorx’s businesses, in addition to continuing to pursue existing market leading growth strategies, will be highly complementary to the anticipated way forward."

Without giving too much of the company strategy away, the market has been left to contemplate what this "new strategic direction" might entail.

Some analysts speculate Kirsh might use the FoneWorx sms competition platforms (among others) to add value to an advertising proposition he first developed at Primedia. But the market will have to wait and see.

Whatever the strategy, the Kirsh family has decided to back a star perfomer in the small cap sector.

Over the past six years FoneWorx has delivered a 22% compound annual growth in turnover to R91m, and over the same period delivered compound net profit growth of 50% up to R19,5m.

FoneWorx reported a 14% rise in revenue to R52,5m, for the six months ended December 2011. In the same period, profit before interest and tax increased by 16% to R14,2m, a 27% margin versus 26,5% in the comparable period in the prior year.

Talking about the transaction, FoneWorx CEO, Mark Smith stressed that despite the IDC being very supportive but passive shareholders he was keen to embark on a new road with a more hands-on shareholder in tow.

"Issie and William Kirsh, respected South African entrepreneurs, will join us as strategic, value enhancing shareholders. Their investment in FoneWorx creates a strong platform for growth with a longer term vision of aligning FoneWorx with assets the Kirsh Family have built up recently."

Post the transactions, the Kirsh family will own 33% of FoneWorx. The balance of the shareholding is, in the main, owned by the directors of the company.

"We have a strong balance sheet and cash on hand approaching R100 million, which provides a solid foundation for investing for the future of the business."

FoneWorx was listed in the Venture Capital Market of the JSE in April 1999, under the name of Interconnective Solutions. The company changed its name to FoneWorx in 2006, a year before transferring its listing to the junior board (AltX) in order to enhance the profile of the listed entity.

The highly entrepreneurial tech firm is the largest independent proprietary switch connected to all the mobile networks (MTN, Vodacom and Cell C) and Telkom. The FoneWorx platform currently constitutes 1 200 channels of voice and data capability. Many large promotions, competitions and voting services that have become household names in South Africa are managed by Foneworx, including Idols, Idols (West Africa), the Telkom Charity Cup, Big Brother Africa, African Cup of Nations and Strictly Come Dancing, to name a few.

Media houses will be paying close attention to this deal to see whether it unlocks another part of the convergence conundrum.


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