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DealMakers - Q1 2023 (released May 2023)


Down but not out: SA M&A to tread water until year end

by Matthew Eb and Itumeleng Molefe

After a relatively strong year in 2021, mergers and acquisitions (M&A) activity dropped off in 2022, both in South Africa (SA) and around the world.

While we expect activity to remain muted in the near term, we expect a pickup towards the end of this calendar year as key drivers of activity fall into place.   

Overall, the SA investment case outlook is beset with challenges: power outages, political uncertainty, and an increasing cost of living pressure for consumers. Against this backdrop, SA will struggle to deliver meaningful levels of growth, particularly as traditional European trading partners navigate recession and geo-political upheaval.  

However, where investor uncertainty and operational challenges for management teams will continue to curtail M&A activity, we expect acquirers, or buyers, to take advantage of opportunities created by such turbulence. 

As seen in recent years, multinationals tend to take a long-term view on South Africa and the sub-Saharan African region and, we believe, will continue to make material acquisitions in select sectors, acquiring quality earnings and operations at relatively attractive valuations. 

Matt Eb DNA pic.jpg
Matthew Eb
Itumeleng Molefe.jpg
Itumeleng Molefe

Investors are recognising inching progress on structural reforms in the economy, supporting their longer-term investment decisions. Examples include Heineken’s acquisition of Distell, which recently received final regulatory clearance; Remgro and MSC’s acquisition of Mediclinic, which also just received approval from the Competition Tribunal, subject to various commitments; and the acquisition of EnviroServ by a SUEZ-led consortium.

This year should see a slightly more positive equity capital markets environment and increased equity issuance, which is supportive for M&A activity. EOH’s rights offer and the successful listing of Premier Foods in March 2023 is indicative of more positive sentiment in this regard. 

In terms of private capital availability for M&A, financial sponsors and family offices continue to have large amounts of capital available for deployment. Globally, financial sponsor “dry powder” is almost three times what it was in 2015. Inevitably, this will translate into increased levels of M&A activity in SA and across Africa. 

We see several trends driving M&A: 

  • Public to private deals – conditions remain strong for the trend of de-listings from the JSE to continue (down to 288 at the end of 2022, from 312 in 2019). We see this being driven by opportunistic buyers taking advantage of low trading multiples on the JSE, or existing shareholders taking the businesses out of the public domain with a view to making structural changes to unlock value over time. 

  • Consolidation – we will continue to see consolidation as a key driver of M&A. In periods of economic downturn and pressure on margins, large sector players take the opportunity to acquire market share from smaller, less resilient ones, or expand into adjacent sectors. Large corporates, which are also well-capitalised relative to pre-COVID-19 times, have recently refined their capital allocation strategies. They are now clearer on their “core” focus areas for investment and primed to execute on growth opportunities. 

  • M&A activity variation by sector:

    • We expect to see low levels of activity in consumer-facing sectors continuing through this year as management teams manage the price/volume balance to maintain margins. However, we believe that the major consumer groups in SA will spend time assessing options to unlock value for shareholders, which will support activity into 2024. RCL FOODS’ announced disposal of Vector Logistics in March 2023, as part of its broader managed separation process, is an example of a major consumer group delivering on an announced value creation strategy.

    • Other sectors, such as financial services, will continue to be active. Sanlam’s acquisition of the remaining 62% stake in BrightRock Insurance and acquisition of control of AfroCentric are recent examples of large players consolidating market share and leveraging their platforms. Sanlam and Allianz have also agreed to combine their current and future operations across Africa (ex-SA) to create the largest pan-African non-banking financial services entity on the continent. 

    • In the resources sector, healthy balance sheet positions, enabled by attractive commodity prices paired with corporate diversification strategies, should be supportive of M&A-led growth opportunities. Thungela’s announcement in February 2023 of its acquisition of Ensham coal mine in Australia is an example of SA mining players with healthy balance sheet positions acquiring assets that offer geographical diversification opportunities. 

    • ESG commitments and South Africa’s energy challenges are driving M&A activities in the energy sector, demonstrated by significant levels of investment into renewable and independent power generation opportunities. Seriti’s establishment of Seriti Green and its acquisition of 100% of Windlab Africa in December 2022, as well as Anglo American’s partnership with EDF Renewables – to form Envusa Energy – are just two examples of the high levels of long-term capital being allocated to the sector. 

    • Healthcare in South Africa is seeing increased levels of deal-making as mid-tier healthcare players continue to emerge across the sector and raise capital for growth. IFC’s pending investment into Lenmed is a good example. Meanwhile, the larger players are driving their diversification strategies (Life Healthcare’s recent announced acquisitions of East Coast Radiology in February 2022 and TheraMed Nuclear in March 2023).

    • In the technology, media and telecommunications (TMT) sector, we see potential consolidation opportunities in South Africa, and fintech acquisition opportunities in the rest of Africa.


Investors will continue to take a cautious approach to M&A in Africa, and buyers will continue to look carefully at M&A options, requiring potential targets to have a proven track record of capturing consumer growth. Gaining a level of comfort in the regulatory and FX environment are also key criteria before investing. Outside of South Africa, Egypt, Nigeria and Kenya are attracting strong investor interest, and we see activity levels gradually increasing, with potential for a major jump in activity from the latter part of the year and into 2024.  

Eb is a Senior Transactor and Molefe a Transactor for Corporate Finance | RMB.

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