Johannesburg - South African M&A activity
jumped 142% in the first quarter of 2010 from the same period last year,
making it the strongest quarter for South African M&A since 2008, according
to independent Mergers and Acquisitions (M&A) intelligence service
mergermarket.
Total deal value reached $6.8bn, the highest figure since Q4 2008.
Deal volume was also up, with 20 deals announced in Q1 2010, an increase
of 25% from the 16 deals announced in Q1 2009, mergermarket said.
Activity was driven by strong domestic deal flow which reached its
highest level on mergermarket records.
"Mid-market activity continues the trend, with an increase of 50% in
both value and volume compared to Q1 2009," mergermarket said.
It said South African companies remain very conservative, with no
investments made outside the country in Q1 2010. Foreign investment into
South Africa followed a similar trend.
"With only three deals valued at $65m announced in the quarter, it is
apparent investors remain on the sidelines. The South African government is
believed to be increasingly sceptical of larger cross-border deals that
would see revenues and dividends leaving South African shores," mergermarket
said.
The leisure sector takes up the largest proportion of M&A in the region
by deal value, wholly thanks to the region's largest deal - Gold Reef
Resorts' acquisition of Tsogo Sun Holdings for $2.2bn.
By volume, the Financial Services sector is the most active in Q1 2010,
with four deals making up 20% of South Africa's total deal count. The
sector's highlight is Metropolitan Life's acquisition of Momentum Group for
$2.0bn.
Rand Merchant Bank topped both the value and volume tables, having
advised on five deals worth $2.8bn.
Deutsche Bank maintained second place from Q1 2009, with a total value
of $2.5bn, while Investec took third place with a total value of $2.3bn.
Edward Nathan Sonnenbergs kept its top position in both the value and
volume tables from Q1 2009, having worked on five deals for a total value of
$5.5bn.
On the outlook for M&A in 2010, mergermarket says investment banks have
clearly been busy canvassing dealmakers with potential deal ideas and the
uptick in activity during this quarter indicates that at least a few of
these proposals have come to fruition. It is expected, however, that the
real increase in activity will only become evident in the second half of the
year.
"An increase in cash resources, mostly from cost cutbacks during the
recession as well as from increased borrowing and active capital raising
exercises, is likely to spearhead the rise in M&A activity over the rest of
the year. Now that companies have de-stocked their inventories and reduced
their obligations to debtors, it's unlikely that cash will be used for
organic growth but rather, it is believed, will fund faster profit-
generation through acquisitions.
"An apparent interest from banks to get involved in private equity
deals, such as Nedbank's involvement in the Freeworld Coatings' acquisition
by a Brait-led consortium announced this quarter, is also encouraging. It
almost certainly indicates that banks' appetites will be further fuelled to
fund deals in the broader corporate community in South Africa over the year
ahead," mergermarket concludes.
- I-Net Bridge