Newsletter, Volume 19 | September 2020
Has the economy started to recover? This is the million-dollar question currently on everyone’s mind. There is a real sense of hope and belief that the economic cogs are starting to turn again. Sure, they may be slow, but turning they seem to be.
To date, we have all been navigating the COVID-19 lockdown with caution and scepticism. Unable to determine what the runway ahead will look like, we’ve been flying-blind when determining what the financial recovery of our business, and economy, will entail.
The very same caution and scepticism has been felt in the South African mergers and acquisitions (“M&A”) market over the last few months. I was asked in a recent interview what the first 6 months of 2020 M&A stats looked like, versus the same period in 2019. It is no surprise that the numbers were much lower in 2020. This was to be expected, as the South African economy was under severe pressure even before the impact of the COVID-19 pandemic sunk it’s teeth into any form of optimism we might have had. You may be asking me why I am repeating common themes that we have experienced on a daily basis via the business press for the last 5 months. The truth is, I am actually not. I want you to read between the lines and see that the numbers may be down, but they are NOT zero. This is always the danger around statistics. Please take a look at those stats from Statista.com as detailed below:
|No of Domestic M&A transactions||Value of Transactions|
|H1 2019||160||H1 2019||$8.2bn|
|H1 2020||132||H1 2020||$3.3bn|
Yes, the trends are down. This is to be expected, right? But there are a lot of really good transactions that have taken place within the numbers detailed above. Whether they were full exits, or bringing on strategic partners to fund growth, we are seeing some exciting activity in the market currently. You are no doubt questioning whether this activity is taking place in certain industries or across the board. As is always the case, there is definitely more activity in certain industries versus others. This has always been the case and is not an isolated event due to the economic fallout of COVID-19.
This activity confirms that there are eager local and international (yes international!) acquirers looking for good businesses. In our recent webinar series, I spoke to what acquirers are looking for when assessing a good target. These fundamentals will always attract buyers and I urge business owners to keep an open mind in deciding on a growth, or exit, strategy moving forward.
Flipping the lens in the other direction, we have seen business owners like ourselves looking into the same crystal ball with no clue of what lies around the corner from a trading perspective, let alone the prospects of selling their business or bringing on a strategic partner. Decision making is slow, we get it, and the risks have never been higher. Many business owners are adopting a ‘wait-and-see’ attitude before making any decisions.
I would like to challenge this. Bear with me if you will. Rewind a year. You are considering an exit, or maybe looking for a growth partner, but you feel that you need another 12 months. Twelve months is not a long time, but not even Nostradamus could have predicted what would have happened in 2020. When considering your options for growth, wealth and exit please consider achieving maximum value for your exit, while at the same time considering blowout risk. Things can always get better, but we have seen that they can also get materially worse.
What cannot be disputed is that we all need as much information and guidance as we can get to navigate the way forward successfully. Consider DLA doing some detailed advisory work on how the market will assess and value your business, along with what the acquirer appetite will look like before taking the next step. We unpack this in the webinar recording (link below), detailing tangible options available to business owners before taking that big step. We offer this as our Business evaluation and Market Assessment process. I am sure you would agree with me that putting reality on the table is always a good start in any decision-making process.