South Africa has seen a marked decrease in the number of deals announced so far this year, with the 14 announced transactions in the first quarter down 58 per cent from Q4 2008 (33 deal
South Africa has seen a marked decrease in the number of deals announced so far this year, with the 14 announced transactions in the first quarter down 58 per cent from Q4 2008 (33 deals) and 60 per cent from Q1 2008 (35 deals), according to a report by mergermarket.
However, two deals worth over USD2bn between them have given South African M&A a solid boost to the start of the year.
While the rest of the globe saw its worst first quarter in six years in terms of total deal values – with a 29 per cent global decrease from Q1 2008 – the total value of South African M&A announced in the first quarter of 2009 – USD2.8bn – is greater than the equivalent quarter in 2008.
Two major acquisitions announced in the first quarter of 2009 account for this increase: US-based hedge fund Paulson’s USD1.3bn stake acquisition in the mining company AshantiGold Ashanti, valuing the entire equity capital at USD11.32bn; and South African property company Redefine Income Fund’s USD928m offer for ApexHi Properties.
Cross-border M&A has had a slow start with only seven inbound transactions – including the AshantiGold acquisition – announced so far this year. Domestic transactions have been stimulated through a string of announced deals in the real estate sector. Besides its offer for Apexhi, Redefine Income Fund also made an offer for another property asset management, Madison Property Fund Managers, for a total of USD118.5m.
Furthermore, with the acquisition of ApexHi, Redefine is in line to take control of Ambit Properties, a real estate company which is currently in the process of being acquired by ApexHi.
As deal-flow slows, cash reserves are likely to be held back and debt to be increasingly difficult to obtain in South Africa, M&A activity is widely expected to focus on the lower-valued, mid-tier level going forward.
The heavily speculated deal between Aspen Pharmacare and pharma group GlaxoSmithKline continues to attract interest and could be followed closely by activity in the broader healthcare sector.
Telecoms continues to be the area of greatest potential, although it appears that the smaller African telecom providers are well aware of the value their assets hold for larger, growth-hungry players. MTN recently announced that target companies were not dropping their asset prices in relation to the economic climate as would be expected. As pressure mounts, however, unrealistic asset premiums are likely to decrease.
New regulations enforced on 1 April this year more than double the levels at which competition authorities must be notified of mergers, which may provide a boost to both domestic and inbound acquisitions below the new merger notification thresholds.
BEE is no longer playing as big a role in M&A activity as it has done in the past, with most of the larger players having already finalised the introduction of their empowerment partners.
