DealMakers - Q1 2021 (May 2021)
by Marylou Greig
Quarter 1, traditionally a relatively quiet quarter, saw 91 deals announced in the first three months of 2021, valued at R83,6bn. Seven of these, with a total value of R4,3bn, were by foreign companies with a secondary listing on one of the local exchanges. Unsurprisingly, BEE deals ground almost to a halt with just two announced in the listed company space. The growing presence of private equity activity in mergers and acquisitions in South Africa continued, with DealMakers recording a total of 29 transactions announced for the quarter. In 2014, the total number of PE deals announced for the year was 40; in 2020, this had risen to 128 transactions, with almost 70% of those announced in the unlisted M&A arena. With dry powder at record levels, this trend is set to continue.
Drilling down into the quarter’s numbers (pg 10), of the 84 local deals, 26% of the target companies were in the property sector, followed by technology (16%), mining and financial services (11% each) and retail (6%).
Of the top transactions by value in the general corporate finance space during Q1, Prosus takes the top three spots with its off-market acquisition of an 8.18% stake in the European multinational online food-delivery service, Delivery Hero, valued at US$2,2bn; the open market acquisition of Naspers shares (R27,18bn); and the general repurchase of Prosus shares (€764,59m). Northam Platinum also featured significantly during the quarter, with the unbundling to shareholders by Zambezi Platinum of its shares in Northam Platinum (R7,6bn) and the unwind of Northam’s 2015 Zambezi BEE transaction (R3,5bn).
The delisting of companies from the JSE continues to be a concern (pg 21). In 1988, there were 754 companies listed on Africa’s largest stock exchange, a number which, by the close of 2020, had reduced to 339. In the first three months of 2021, a further 11 companies have delisted, against just two new listings recorded for the quarter. While there have been a number of reasons put forward for this trend, it does highlight a shrinking investment landscape, which is problematic for both private investors and asset managers.
Looking ahead, plenty of uncertainty lingers, including the sluggish rollout of COVID-19 vaccinations and the evolving political shakeout within the ANC. With the local economy only expected to achieve pre-COVID-19 GDP levels in 2024, M&A is expected to be driven by a rebound in sectors impacted by the pandemic; an ongoing wave of portfolio and balance sheet restructurings, as corporates refocus on core assets; a recovery in cross-border transactions; and activity by those companies with access to inexpensive and plentiful capital increasing scale by taking advantage of low valuations.