Johannesburg — TECHNOLOGY supplier Datatec is expanding its footprint in Asia by acquiring a company for 19,8m, paying 40% less now than it was considering two years ago .

Datatec will issue new shares rather than use its cash resources to pay for the NetStar Group . CEO Jens Montanana says a recent surge in Datatec's share price and their higher rating compared with NetStar's make it better to use paper than to splurge the cash.

Datatec was trading at about R26 yesterday, double its value of six months ago and a huge 94% up from levels of a year ago.

NetStar is a network integrator with operations in Australia, Taiwan, Singapore, Malaysia, Hong Kong and mainland China. It will be folded into Logicalis, the Datatec subsidiary offering technology infrastructure services.

"We want to improve our game plan in Asia," Montanana said. "While 20m isn't earth- shattering in size, it's important for Logicalis, which is strong in the US and Europe but Asia has been a gap ."

Logicalis sold some Australasian operations to IBM a few years ago and the sale carried a restraint of trade clause for four years.

Since many Asian companies have a presence in Australia , Datatec was limited in the moves it could make.

NetStar is owned by private equity investors, and though they were willing to sell two years ago, they were even more willing to sell now the value of their investment had declined, Montanana said.

"By sitting on the sidelines we did well. We could have lost it, but we tend to do our best-timed deals at the end of a recession. This transaction and other potential deals we are looking at will help drive steeper earnings as we start to come out of the recession."

Montanana first spoke of targeting China when Datatec issued its results in May, describing it as an obvious but difficult market . Three reconnaissance visits followed before the deal was announced yesterday.

Datatec already works with multinational companies moving further into Asia. "We want to be in the key regions and NetStar is in Sydney, Singapore and Hong Kong, all major financial centres. It also gives us a meaningful toehold in mainland China ... from which we can start exploring cautious expansion."

Montanana said NetStar was a well-run operation with a strong management team and it would be earnings and margin enhancing immediately, as well as making a solid platform for adding other Asia-Pacific acquisitions.

NetStar's customers are in the government, telecoms, hospitality and finance sectors, and it forecasts revenue of 70m and gross earnings of 6,5m for its financial year to June next year .

DATATEC

Half-year 2009 2008

Revenue (bn) 1,8 2,2

Pretax (m) 16,547

Net income (m)8,732

Headline EPS (c) 4,9 17,6

Dividend PS (c)