M&A activity down

Merger and acquisition activity in SA dropped significantly last year and Ernst & Young (EY) reckon that BBE activity is going to drive deal making in the year ahead, as it did last year. Angelo Coppola reports.

E&Y – who released a book on the subject today (30.3) say that the value of local deals dropped from R242bn to R150bn – a collapse of 38%, and cross border investment was virtually non-existent.

Added to which foreign direct investment numbers were down and this has an effect deal activity – locally.

Interestingly, in terms of number of deals, these actually increased, from 783 to 790, so deal size reduced and BEE deals jumped from 104 in 2002 to 189 last years. In terms of value, this increased from R12bn to R42bn – a four-fold increase.

According to Dave Thayser, corporate finance partner and author of the book, “The hoped-for upturn in deal-making didn’t materialize – again.” He ascribes this to uncertainty in local and international markets.

The recovery in international markets in the second half of last year could lead to an increase in deal making activity. Thayser mentioned that those businesses going offshore drop off the activity watch by E&Y. He mentioned that SAB Miller and BHP Billiton were prime examples.

2003 saw only two deals over R5bn, although this shouldn’t be misconstrued as lack of activity from corporate finance professionals. As the markets turned towards the end of last years, so there was a flurry of activity in deal making circles.

There were many deals concluded, and many of these were for undisclosed amounts and thus dropped off the radar screen.

According to Thayser the deal of the year was the African Rainbow deal Harmony Avmin deal, valued at R10bn which led to the creation of a BEE giant in the mining sector.

As more charters are announced by the various business sectors so the deal making activity in the BEE area will increase.

In terms of trends, Thayser says that the main driver is the white-held businesses looking for BEE major black shareholders.

On the financial services front there was nothing to report, other than the Mvelaphanda and Tokyo Sexwale, who bought a R2.6bn stake in Absa, while the R2.2bn deal by the Patrice Motsepe-led consortium for 10% of Sanlam in December, were of interest.

Interestingly Sanlam was one of the first entrants into the BEE business activity arena, nearly 10 years ago

The smaller Investec Tiso deal for 25% of the Investec domestic arm for R981m, is also noteworthy.

The next 10 years will see more shareholder activism, more corporate governance issues, the regulatory environment will tighten up, directors and auditors responsibilities will increase, and BEE remains the main driver.