Mergers and Acquisitions – way off previous heights

“The slowdown in mergers, acquisitions and other corporate actions, became increasingly evident during the second half of last year, and was particularly acute in the fourth quarter” says Peter McCrystal, PricewaterhouseCoopers SA Director – Advisory: Transaction Services. “The last few months of 2008 were mainly focused on completing and executing deals struck earlier in the year, with only a small number of new deals being announced. So far in 2009, deal flow is notably slower, expected to brake even further in the second half of the year.”
McCrystal’s comments come after the recently announced Dealmakers 2008 rankings, where the total value of SA M&A deals executed came in at a modest R397 billion (DealMakers Volume 9: No.4)for a year which was marked by a fall-off in BEE deals and several failed M&A attempts.

In the DealMakers category, Reporting Accountants – Mergers and Acquisitions, PwC SA was ranked first in terms of Deal Value with R55 billion, and second in terms of deal flow/number of transactions with 10 deals. In this category, PwC was reporting accountant on some of the top ten deals by value -  including the R9,5 billion Liberty Holdings acquisition of Liberty Group minorities, the R33 billion MTN Public Investment Corporation/BEE transactions and the €750 million Sappi acquisition of M-real’s coated graphic paper business.

In the category Reporting Accountants – General Corporate Finance Activity, PwC SA was ranked first by transaction value at R783 billion, and second by number of transactions with 18. This category - which includes transactions such as share issues and repurchases, restructurings, unbundlings, listings and capital reductions - is usually viewed as less dynamic than the M&A space. However, in 2008, activity here exceeded that of M&A, with R1,1 trillion of transactions announced. General Corporate Finance Activity crossed the R1 trillion mark for the first time, mainly due to the enormity of what was acknowledged as The DealMakers’ Deal of The Year – being the Remgro and Richemont unbundlings and related new listings of BAT and Reinet.

Besides being reporting accountants on Deal of the Year, other General Corporate Finance highlights for PwC included MTN, a specific share issue in Rainbow Chicken and the Pioneer Food listing and subsequent renounceable rights offer.

Looking to 2009, McCrystal says there is an increase in distressed sales, of entire businesses or specific divisions. “We are also seeing more of a ‘meeting of minds’ between buyers and sellers, with sellers finally realising the harshness of the present environment and pricing their deals more realistically. For buyers, finance is tight and expensive and there is now a lot more syndication of debt-financing rather than a single party taking up an entire deal.”

McCrystal notes that private equity is following the general trend and is slowing down, and that public to private are proving difficult to execute. “Although this is an opportune time for companies to delist because valuations are so low and deals could be executed at very attractive take out prices, the financing aspect is proving very challenging for leveraged and management buy out transactions.”