South African mergers and acquisitions (M&A) are poised for a resurgence in 2024, with signs of economic recovery in the $405 billion economy, according to Investec Plc. As global macroeconomic indicators improve, South African companies eye international expansion, while foreign firms explore attractively priced local assets. Despite a 90% drop in completed M&A deals in 2023, improvements in interest rates and easing power crises have fuelled renewed optimism. Marc Ackermann, head of corporate finance at Investec, anticipates a return to pre-pandemic M&A levels, with global deals growing up to 15%.
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By Adelaide Changole
Mergers and acquisitions in South Africa are set to rebound this year as the $405 billion economy starts to show signs of recovery, according to Investec Plc.
As macroeconomic metrics improve around the world, South African companies are likely to expand abroad while overseas firms explore attractively priced assets in the local market, according to Marc Ackermann, head of corporate finance and co-head of investment banking for the country at the lender.
“We’ve seen a renewed optimism from our clients in looking at opportunities,” Ackermann said in an interview with Bloomberg News.
Rising interest rates and geopolitical risks have weighed on global deal volume, which slumped to $2.9 trillion last year, the lowest since 2013. In South Africa, completed M&A deals collapsed almost 90% to $1.9 billion in 2023 from the previous 12 months, according to data compiled by Bloomberg, as infrastructure challenges including power outages added to investor concerns on top of higher borrowing costs.
But the outlook is more positive now, Ackermann said, adding interest rates have peaked while the power crisis has started to ease. Though the looming elections — before which several opinion polls show the ruling African National Congress is on course to losing its national majority for the first time since the end of White-minority rule in 1994 — would create a “little bit of short-term noise,” there’s more room for optimism, he said.
That’s “really coming from a platform where our clients are being able to better understand what the prospects look like in the short to medium term, coming from a world in the last 12 to 18 months where they had very little certainty,” Ackermann said. There’s “certainly an elevated interest for both our corporate and financial sponsor clients to deploy capital into opportunities,” he said.
Ackermann sees M&A activity returning to pre-pandemic levels, with deals globally growing as much as 15% this year.
Investec, whose shares are listed both in London and Johannesburg, acquired a majority stake in European adviser Capitalmind last year to help beef up its M&A and corporate finance team to 200.
The International Monetary Fund forecasts South Africa’s economy to grow 1% this year and 1.3% in the following 12 months. That’s only a slight improvement from the less than 1% gain in 2023, which was the slowest since a contraction in 2020. The anemic pace of recovery would push local companies to diversify overseas where they could tap faster growth, Ackermann said. This week, the IMF raised its outlook for global growth this year to 3.1%, up from an earlier prediction of 2.9%.
“There certainly has been an increase in consideration for diversification of earnings offshore,” Ackermann said. Very few South African corporates can afford billion-dollar deals now, but a pickup in activity is likely in the mid-market segment, he said.
For global companies, valuations in South Africa could be alluring as the country, with its level of industrialization, offers a springboard into the rest of the continent, he said.
Ackermann sees rising interest in pharmaceutical, retail and consumer sectors, as well as in the renewables and digital infrastructure spaces. He also expects the rand to appreciate over the course of the year.
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