There can be little doubt that the COVID-19 pandemic and its many adverse effects on the nation’s businesses have led to a declining interest in the mergers and acquisitions (M&A) market by companies in South Africa. At the same time, the difficulties resulting from lockdown have left many local businesses on the verge of collapse or struggling to recover and resume their growth. Consequently, many of their owners are anxious to find a willing buyer or investor. Despite this somewhat gloomy scenario, M&A activity in Sub-Saharan countries increased massively in the first half of 2021. For that period, the value of local deals was around $US 52 billion, almost a tenfold increase on last year’s first half, despite an 8% reduction in the total number of transactions.
This welcome upturn in mergers and acquisitions deals in South Africa results from a significant surge in interest by overseas investors, particularly in those countries with traditional ties to the Republic. The pledge by the Biden administration to strengthen US relations with African countries also holds the promise of renewed interest from companies in North America.
On the downside, the recurring unrest in our country has been creating concerns among potential overseas investors. In turn, such reservations are prompting increased caution by interested buyers when exercising due diligence. Future deals will be more dependent on past performance, prospects and strong negotiating skills from the mergers and acquisitions specialists in South Africa.
That said, there is another option open to local business owners that could avoid seeking investment from overseas. Efforts by our government to promote the more equitable distribution of wealth have led to some markets becoming restricted to companies owned by previously disadvantaged citizens and those that display their visible support for this ideal. However, those restrictions can be lifted for businesses that accumulate sufficient B-BBEE points. Finding a suitable B-BBEE partner offers the quickest way to attain that worthwhile goal. Like the search for overseas prospects, these deals also require the expertise of mergers and acquisitions companies in South Africa.
There are many valid reasons for a company to consider buying or merging with another. For example, an overseas purchase could offer a much faster, simpler and less costly route to pursue expansion plans abroad. Buying an existing business can eliminate the need to find suitable premises, hire and train new staff and build supply chains when attempting to establish a presence from scratch.
When companies choose to merge with another rather than buy it, they tend to do so with one of three goals in mind, according to mergers and acquisitions experts. A business in South Africa might pursue this route to reduce competition, cut costs or extend its existing product range. Merging with a timber supplier or fabric company could be a means for a furniture manufacturer to guarantee a secure supply chain.
While such prospects are attractive, finding the right buyers or partners and securing mutually beneficial deals demand skills and resources beyond the scope of the average seller. However, Deal Leaders International has closed transactions worth close to R1 billion in the last six months alone, marking them as the go-to company for mergers and acquisitions in South Africa.