iOCO: Smarter deal-making this time?

Before it became iOCO, the company known as EOH was once celebrated as South Africa’s fastest-growing technology success story … and later remembered as one of its most spectacular corporate implosions.

For those who need reminding, over just eight years EOH executed more than 150 acquisitions, inflating its reported profits and asset base while piling up goodwill that ultimately exceeded total equity. By October 2023, equity had shrunk to R587m and, excluding intangibles, was negative.

Shareholders lost an estimated R24bn in market value as the share price collapsed from R174 in 2016 to below 100c at its low. A forensic investigation uncovered roughly R1.2bn in suspicious transactions — including bribery, bid-rigging and irregular payments — exposing the fragility behind the façade of scale.

Choked by debt and starved of cash, EOH could only stabilise itself through a R600m rights issue and asset disposals that reduced borrowings by R678m in early 2023. That recapitalisation marked the line between implosion and renewal, closing the chapter on a debt-fuelled empire and opening the door for a leaner, more disciplined successor.

What rose from the ruins of EOH is a company rebuilt for substance over spectacle. Reborn as iOCO, the group is smaller, steadier and — critically — profitable. In financial year 2025 revenue reached R5.58bn (with the second half up 4.4%), delivering a gross profit of R1.6bn and a 29% gross margin (28% in 2024). Tight cost control made all the difference: operating profit swung to R421m (8% operating margin, from 2%), while ebitda rose 50% to R516m (9% margin).

Governance, once the Achilles heel, is now the spine — including an independent audit and risk committee and separated tender oversight. On paper, iOCO has achieved what its predecessor only promised — profitability, prudence and control.

We’ve reinvigorated the cloud business, focused more attention on cyber security and shown the diversity of the business by supporting growth in Egypt and Saudi Arabia

—  Rhys Summerton

iOCO was confident enough to offer guidance for 2026 of ebitda of between R580m and R600m with recurring income set at 60% (from 48% in 2025) and 60c free cash flow per share.

At the recent investment presentation, joint CEO Rhys Summerton said he believes iOCO can be a South African tech champ. “We’ve reinvigorated the cloud business, focused more attention on cybersecurity (and look forward to adding to that business in the future) and, internationally, we’ve shown the diversity of the business by supporting growth in Egypt and Saudi Arabia.”

What might cause some fretting among diehard shareholders is Summerton’s admission that iOCO is actively exploring a targeted pipeline of acquisitions designed to strengthen the group’s capabilities, expand market share and accelerate growth. “These opportunities span complementary service lines, new geographic markets and platform capabilities that enhance our recurring revenue base and margin profile.”

The possible acquisitions range in size from R40m to R300m — so fairly manageable bites (see graphic).

History, though, shows acquisitions promise quick scale and relevance, but most destroy value; more than half erode shareholder wealth within two years. The reasons — overpayment, poor integration and managerial hubris — are timeless. As Jim Collins warns, great companies grow through discipline and innovation, not by buying size.

South Africa’s record proves the point: Steinhoff, Aspen, Woolworths, Famous Brands, Brait and EOH all chased growth through debt-fuelled deals, while only Bidvest and PSG succeeded by treating capital as scarce and culture as sacred.

Now iOCO plans acquisitions as a core growth pillar, locally and abroad. In a JSE starved of growth, that may lift the share price — but the real test will be whether discipline, not excitement, drives the next expansion.

Discipline — the ability to exceed the cost of capital, not just expand the top line — will be key for iOCO. The playbook is simple: ensure strategic fit, value prudently, integrate rigorously, fund conservatively and measure transparently. Cisco’s 216 disciplined acquisitions have generated more than $20bn in recurring software revenue, while Bidvest’s bolt-on deals show how small, focused acquisitions can steadily compound value.

Summerton and his co-CEO, Dennis Venter, have articulated a three-phase plan anchored in discipline, autonomy and selective expansion — a framework designed to ensure the company’s next chapter is built on control, not excess.

The first phase has been largely achieved: governance restored, costs contained and the balance sheet strengthened. In financial 2025 alone, iOCO reduced R319m in debt and overdrafts, lowering its net debt-to-ebitda ratio from 1.33 times to just 0.48, while interest cover improved from 3.4 times to 6.7. The company now funds its growth internally, a symbolic and structural break from the EOH era.

The second phase, autonomy, is transforming the operating model. Summerton indicates that business clusters are being empowered to make faster decisions, innovate within their niches, and be accountable for measurable returns rather than narrative success.

The final phase, selective expansion, will take this discipline to the acquisition frontier — pursuing tightly screened targets locally and abroad that clear a cultural-fit review before capital is committed.

That said, in an age obsessed with scale, research & development (R&D) remains the most undervalued form of growth capital. Acquisitions may buy revenue, but innovation builds resilience. McKinsey’s 2023 Global Growth Report found that firms sustaining R&D intensity above 5% of sales outperformed serial acquirers by more than 10 percentage points in total shareholder return over a decade.

The reason is simple: innovation compounds internally, while acquisitions reset risk with every deal. For a technology group like iOCO, whose value lies in intellectual capital rather than hard assets, the path to durable growth lies not in buying more bodies but in building more brains — in proprietary platforms, software and digital solutions that scale without dilution.