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.
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.”
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