DealMakers - Q3 2019
by Marylou Greig
The spectacular win by the Springboks in the final of the 9th Rugby World Cup gave a struggling nation brief respite; it brought together its people desperate to move forward without the constant negative invasion of politics, economic woes and escalating crime. Even Moody’s downgrade of the country’s credit rating the day before, from stable to negative, and the real possibility of junk status next year was forgotten, even if it was just for the day.
As resilient as the M&A industry might be, given that difficult times for some provide opportunities for others, the year to end-September saw a 15% year-on-year decline in the number of deals to 349 valued at R347bn (down 37% on 2018’s value for the period). Of these deals, 64 were cross border, a third of which
were the acquisition by South African exchange-listed companies of assets, in a move to hedge earnings against the weak Rand, while the remainder were disposals as companies looked to restructure and focus on core businesses in difficult economic times. The largest local deal by value to date is the acquisition of Pioneer Foods by Pepsico, valued at R23,6bn, while the disposal by Nampak of its glass business to Isanti Glass – 60%-owned by Kwande Capital and SABSA (40%) – for R1,5bn, is the largest BEE deal.
In addition to the reduced flow in M&A, there was a decrease in the number of companies seeking to raise funds from the capital markets. Companies sought rather to make the most of softer share prices by using excess cash to repurchase company stock. The number of companies restructuring businesses continues to increase, currently 12 up from nine in 2018, and five in 2017. The listing of Prosus in September is set to dominate the general corporate finance tables for 2019; in fact, the four largest transactions so far this year involve Naspers with its unbundling and listing of Prosus and MultiChoice.
The difficulties faced by the investment industry over the past few years have laid bare the dangers of assumption, of not doing the leg work but rather taking management’s words at face value. The most obvious examples are SA corporates Steinhoff, Tongaat Hulett and EOH. In addition, bad judgements and over indebtedness in tough-times means no wiggle room. As CEO of Anchor Capital, Peter Armitage stated in a recent article, “Be wary of companies with high gearing, be sceptical of big offshore investments and be aware of the risk posed by regulators who can change the rules of the game overnight”.
As we speed headlong towards the ‘annual migration’ that is the end of year holidays, DealMakers wishes you all a safe trip to wherever you may be headed; enjoy time with friends and loved ones as one thing is for sure, 2020 will demand even more from each and every one of us.