M&A activity more than halves in South Africa, dim prospects for jobs
Merger and acquisition activity dropped dramatically in South Africa last year: there was a total of 85 deals valued at $6.8bn, the lowest since 2003, a decrease of 61% by value and 42% by volume compared to 2008. A number of smaller deals could not compensate for the collapse of two expected mega-deals, the tie-up between SA telecoms giant MTN and India's Bharti Airtel and that between mining firms Xstrata and AngloAmerican.
The energy, mining and utilities sector once again accounted for most of the activity in 2009, with twelve deals with a total value of $2bn. The financial services industry saw the most transactions, with 21% of overall deal announcements and 24% of total value, according to a new report by Mergermarket, a specialist information and analysis provider.
UBS Investment Bank took the lead in the financial adviser value tables, advising on four deals with a total value of $2.7bn, followed by Goldman Sachs, Deutsche Bank, Deloitte and JPMorgan. Among local financial institutions Standard Bank fared best, topping the financial adviser volume table with seven deals with a total value of $906m, followed by Investec and Nedbank Capital with six deals each.
The dominance of foreign firms, and indeed the recent inclusion of South Africa in Mergermarket's global survey, are a positive signal that "reflects the country's growing prominence on the M&A scene," says Gareth Driver, mergers specialist at Werksmans, the law firm that was the most active in the M&A sector last year with 22 deals to its credit.
"The size and scale of transactions being undertaken by SA companies and SA's role in Africa have increased international interest in South African M&A. Deal volumes were low in 2009 and a number of transactions stalled, but by the end of the year M&A activity was stronger than at the end of 2008 and, as conditions continue to improve, we should see acquisition activity gradually picking up."
Mergermarket is less optimistic, predicting that "the year ahead is expected to be tough for the local M&A scene. Immediate activity is unlikely." The one promising exception is "the floundering Nigerian banking sector", which continues to pique the interest of South African banks.
"We agree 2010 will be a tough year and from an M&A perspective the 2010 World Cup is likely to distract attention from deal making too," says Rob Wessels, joint head of corporate finance at Nedbank Capital. But "Africa remains a growth zone", he says, and there will be deals in healthcare, telecoms, infrastructure and especially resources, sector in which "parties are talking again about potential deals" following the steady rise in commodity prices through 2009 and in the early part of 2010.
However, "credit conditions remain tough and equity markets are cautious," says Wessels. "Our experience has been that funded deals are more difficult to close and that this is likely to continue for the rest of the year. The banks have been more cautious in hiring new personnel and even if activity picks up I'm not convinced that staffing levels will increase rapidly."
The outlook is dim: the sharp fall in M&A activity was bad news for jobs last year and the situation is unlikely to change any time soon.
