South African outbound M&A is looking at another strong year after a record high in 2015

South African outbound M&A has had another strong year in 2016 with nearly $7billion worth of activity so far this year, with predictions that it could reach over $8.5billion by year end. Analysis shows that with South African corporates ploughing 55% more into outbound mergers and acquisitions so far in 2016 than in 2013, there is an increasing appetite to look abroad for investments. The analysis has been published by law firms Linklaters and Webber Wentzel today.

Outbound M&A reached a peak for South African corporates in 2007 with $12.5billion worth of deals, averaging only $4.4billion a year. It’s only in the last two years that the deal value has significantly increased.

Christo Els, Senior Partner at Webber Wentzel, says: “There have been a number of factors pushing South African corporates to diversify internationally, not least because of the rand volatility. We’re likely to see the currency unpredictability continue to play a role but there is also a sense of international ambition and desire to push into new markets that will drive some of this activity.”

Over the last ten years, South African outbound M&A has totalled more than $65.8billion with 22% in the retail sector. This is followed by the healthcare sector with US$12.5billion, materials with $11.2billion and telecoms with $8billion. 2015 and 2016 were particularly strong years for investment from South African companies into the retail sector with $8.5billion worth of outbound M&A activity.

M&A Outlook

Looking to 2017, Charlie Jacobs, Senior Partner at Linklaters, says: “there are a number of political triggers which may cause market volatility in 2017, leading to acquisition opportunities in Europe. There is not only the ongoing impact of Brexit but also the after effect of the recent constitutional referendum in Italy and general uncertainty around elections in France, the Netherlands, Austria and Germany. South African corporates may have to take a wait and see approach in some geographies but in others, there could be some strong investment opportunities.”

Jacobs, also points to possible M&A activity in growth markets. He says; “there are co-financing and partnership opportunities in Chinese infrastructure, especially through the One Belt, One Road initiative, whilst in Latin America the Argentinian economy is opening up and we’re seeing disposals in the telecoms sector in Mexico and commodity opportunities in Chile and Brazil.” 

Challenges for outbound M&A

Whilst the analysis published today points to an increase in outbound M&A activity for South African corporates, lawyers point out that the deals aren’t without their challenges.

Els, says: “Every deal comes with a level of risk or complexity and that varies depending on the country and sector being invested in. As South African corporates look at M&A opportunities, there might be a range of merger control issues to consider including the impact of the deal  on South African operations, conditions of employment and liquidity of South African listed shares. But this will very much vary from country to country and there is no one size fits all model.” 

He points out that this will differ depending on the competition authority in each country, for example, merger control reviews in developed countries typically focuses only on the effect of the transaction on competition compared to developing countries where the focus is often on both a competition and public interest assessment.

Whilst another factor might be shareholder activism. Jacobs says: “shareholder activism is now a key consideration in big ticket M&A deals – South Africa has seen 10 activist actions since the start of the year. It is fast becoming a potent tool to extract maximum value in acquisition scenarios.”

ENDS

For more information, contact Surinder Sian on +44 207 456 4842

About Linklaters:

  • Linklaters LLP is a leading global law firm, supporting clients in achieving their strategies wherever they do business. We use our expertise and resources to help clients pursue opportunities and manage risk across emerging and developed markets around the world.
  • Linklaters has a long and deep experience of working on matters throughout Africa, helped by its unique ability to cover all three principal legal systems through its offices in London, Paris and Lisbon. These core offices are complemented by Africa experts across Linklaters’ and its alliance firms’ offices in Europe, Asia-Pacific, the Middle East and the Americas allowing Linklaters to service investors into Africa worldwide.

About Webber Wentzel:

  • Founded in 1868, Webber Wentzel is today one of Africa's leading law firms with a total staff of approximately 800 with offices in Johannesburg and Cape Town.  Our core strategy is to support our clients wherever they do business.
  • We are a full service partnership with deep expertise and experience across a comprehensive range of sectors. We are ranked in every practice area researched by the leading legal services directory, Chambers Global, and have more individuals identified as leading lawyers in their specialist areas than any other South African law firm.
  • A deep understanding of our clients' needs and our tailored approach has led to numerous independent awards, both in South Africa and on the continent.  These include being named Africa Law Firm of the Year at the African Legal Awards, Sub-Saharan Africa Legal Advisers of the Year at the European M&A Awards hosted by the Financial Times and Mergermarket, and Who's Who Legal South African Law Firm of the Year for five consecutive years.
  • Core to the ethos of our firm is the belief that diversity is the key to delivering effective legal services in South Africa.  In harnessing the varied experiences, perspectives and backgrounds of our partners, employees and stakeholders we ensure that we are able to serve our clients appropriately.

Building on 100 years of combined experience and expertise in Africa, the alliance between Webber Wentzel and Linklaters provides clients with market leading support across Sub-Saharan Africa and complementing both firms’ market leading Africa practice. Together we provide our clients with a unique advantage through the firms’ combined experience, know-how, and international and on-the-ground resources.