DealMakers - Q1 2022 (released May 2022)

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INSIGHTS

Market, business and legal trends in 2022

Here are some of the key trends that Webber Wentzel is seeing in 2022.


 M&A                                                     
Christo Els, Chairman and Senior Partner: 2022 has seen a continuous uptick in deal activity in South Africa with some of the COVID-related market volatility coming to an end. Companies in various industries are continuing to realign their portfolios to concentrate on their core business and divesting of non-core assets. Companies may also sell off aspects of their portfolios in response to ESG related objectives. 

Flowing from current geopolitical tensions in Russia and Ukraine, commodity companies are in demand. This commodities demand drives markets in South Africa and Africa more broadly. Big investors in the global emerging market indices will also have to trade out of Russian companies because of sanctions and, as they seek investments elsewhere, it may make the South African market more attractive.

Ziyanda Ntshona, Partner and Head of the Corporate Practice: A number of South African entities that expanded into sub-Saharan Africa are in the process of withdrawing from certain markets in a bid to consolidate or focus on their core businesses.

 ESG                                                              
Vlad Movshovich, Partner and Practice Leader in the Dispute Resolution Team: At this point, the firm is providing more advice to clients on ESG implementation and potential risks, but there is not yet a noticeable uptick in ESG-related disputes, probably because ESG regulatory changes were still at discussion stage.

Big disputes will come once it is implemented, potentially in areas such as competition law, clashes between environmentalists and industry, and regulatory enforcements.

Merlita Kennedy, Partner in the Dispute Resolution Practice, agrees that the main focus of ESG work to date has been advisory, but ESG disputes across all sectors are likely to increase in the near future. These were very likely to take the form of large-scale class actions.

Bruce Dickinson, Partner in the Corporate Practice: ESG-related transactions, such as Anglo American’s separate listing of its coal assets into Thungela Resources, are already occurring.


Corporates will review their asset make-up and determine whether elements should be kept from an ESG perspective or spun off. This will continue during 2022. We also see companies paying more attention to ESG in their supply chains, which is causing them to review contractual arrangements and how contractors’ activities can help to enhance the corporate’s ESG rating.


On the social/sustainability side, we are seeing more focus on meaningful community engagement and development.


Nomsa Mbere, Partner in the Corporate Practice: Governance issues in ESG are likely to become more prominent. Global companies are cascading their requirements onto their South African subsidiaries. This entails quite a lot of technology upgrade to process ESG data so that the South African subsidiaries can contribute to the global group’s reports.


There needs to be oversight by the board to make sure this is carried forward – I don’t believe company publications in the past have given enough attention to the social and governance aspects of ESG – but been more focused on the 'E'.

 

 Disputes                                                    
Vlad Movshovich: There was a clear shift related to COVID for litigants to employ larger firms. Perhaps size is associated with quality and security.

Another ongoing trend, which has been evident for the past decade, is that an increasing number of litigants are going to arbitration for complex commercial disputes. In South Africa, the High Court is trying to win this business back through commercial court directives, and in some of our matters at the commercial court, we have found that this works quite well, but the outcome is still longer and less predictable in quality.

Continent-wide, there’s been a substantial uptick in arbitration, and we’ve seen more African firms being briefed, which is very welcome. Also, some of the international arbitral institutions are appointing more African arbitrators. 

COVID-19 did not pause disputes, except where business rescue practitioners or insolvency practitioners decided not to pursue matters initiated by the business owners, or the insolvency of the debtor made enforcement of the debt futile. There were more disputes now than pre-COVID, related to business rescues and liquidations.


 Distressed companies                      
Ryan Smith, Partner and Business Rescue (BR) expert: Many businesses will remain in business rescue for 2022, while business rescue plans are formulated and implemented. There are approximately 1,658 active BR proceedings in South Africa, representing 39% of all BR proceed-ings commenced as at 31 December 2021. 

About 18% of these BR proceedings have resulted in their respective business rescue plans being substantially implemented, while only 511 ended up in liquidation. We have recently seen that SA's largest cinema chain has successfully had its business rescue plan approved following a ZAR 250 million offer that was made for the business, and this plan will be implemented during 2022. There may be an increase in the overall numbers of companies that commence BR proceedings over the year – all hoping to find a way to continue trading, rather than liquidate.

Khurshid Fazel, Partner and Head of the firm’s Financial Services Sector Group: Some companies that were badly affected by COVID-19 are slowly recovering. Banks are quite accommodating in these circumstances, and this is helping.

 Technology                                              
Laura-Jane Jacobs, Legal Project Manager: Clients in 2022 are continuing to seek "more for less", and increasingly showing an interest in their legal advisors using appropriate technology on their matters; legal firms, in turn, are responding with an improved level of adoption.

Nurie Jappie, Legal Project Manager: This uptick is also being driven by necessity because we are increasingly grappling with huge volumes of data, for example, for evidentiary purposes, that are too large and complex to be dealt with manually through traditional methods. It is here that technology can add huge value by providing real insights that can drive the strategy and ultimately help determine the success or failure of a legal matter. 

The successful execution of a client's matter is not only dependent on legal expertise and technology: one needs a combination of the right people with the right knowledge, skills and experience using the appropriate technology, all working to an optimised process to ensure that the matter is delivered in the best way possible. Our legal solutions need to be appropriate for budgets and the scope of the matters we are dealing with.

We work closely with our clients and lawyers to understand their key project deliverables, and together we agree how best to achieve their desired outcomes as efficiently and cost-effectively as possible, while providing an enhanced experience.