• More than 270 M&A deals are expected in 2018.
  • Transaction values will rise to more than R90 billion in 2018.
  • Easing political sentiment may create massive opportunities for acquisitions, and a shift in deal financing and buying patterns, to take advantage of the volatility.

The number of mergers and acquisitions (M&A) in South Africa halved last year due to political risk and a sluggish economy. Dealmakers, however, are expecting a much busier year ahead.

Only about 172 M&A deals were concluded in 2017, according to the law firm Baker McKenzie’s Global Transactions Forecast.

The total number of M&A deals for 2016 was 115, with a record-breaking R1.5 trillion in total value, largely due to one deal, the R1.24 trillion AB InBev/SAB merger that the law firm, Webber Wentzel was involved in.

Whichever way you strike it, 2017 was one of the low point years in the last decade or 15 years from an M&A activity perspective, both in terms of volume and value.
Colin du Toit, partner at Webber Wentzel

But, he adds, South African corporates are ready to unlock their capital for investment, which could see many more deals in 2018.

Turning tide in 2018?

Marc Yudaken, partner in Baker McKenzie's M&A Practice, tells Business Insider South Africa that 273 deals are expected in 2018 to the value of more than R90 billion, an increase of more than 50% from 2017.

With Cyril Ramaphosa as the new president, there is hope for a normalisation of the economic environment and restored investor confidence, especially among foreign investors who previously looked to dispose of interests in South African assets, says Yudaken.

Here are some of the expected transactions and trends for 2018:

  • FirstRand’s proposed R18 billion takeover of Aldermore in the UK is among one of the closely watched outbound diversification deals.
  • Distell is expected to undertake a major restructuring of its multi-tiered ownership structure to a clearer and simpler shareholding structure.
  • Old Mutual plc is listing its Old Mutual Wealth unit, valued at around R38 billion, in the UK.
  • A possible consolidation in the telecommunications space could be Cell C being acquired by either MTN or Vodacom. The latter just finalised a R35 billion acquisition of an effective 35% stake in Kenya’s leading telecoms company, Safaricom.
  • Zimbabwe could also be a target for outbound diversification. Senior Partner at Webber Wentzel, Christo Els, believes Zimbabwe may still be a bit speculative, but that there are interesting opportunities, especially in mining.
  • Deconsolidations are going to be a trend should the Competition Amendment Bill pass. The proposed legislation is aimed at progressing transformation in sectors like financial services to promote diversity in business ownership structures.
  • A larger number of Black Economic Empowerment (BEE) deals are expected, Els added. “We are going to see targeted divestments, which we have already seen this year with Murray & Roberts spinning off its divisions. There is going to be a lot of that happening.”
  • Corporates are expected to continue to buy out tech disruptors to maintain market position.
  • The evolution of fibre infrastructure will support M&A in the telecommunications, media and technology sector where corporates are looking to secure geographic advantage which requires capital raises or acquisition of existing footprints, the heads of corporate finance at Standard Bank, Andrew Balnaves and Khutso Manthata, told Business Insider South Africa.

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