South Africa is poised for a significant rebound in mergers and acquisitions (M&A) activities this year, driven by improving economic indicators and a surge in optimism, according to Investec, a specialized lender with a presence in both the United Kingdom and South Africa. As global macroeconomic conditions gradually improve, South African businesses are gearing up for international expansion, while foreign entities are eyeing attractively priced assets within the local market, says Marc Ackermann, Head of Corporate Finance and Co-head of Investment Banking for Investec in South Africa.
“We’ve witnessed a newfound sense of optimism among our clients as they explore various opportunities,” Ackermann stated during an interview with Bloomberg News. In recent years, rising interest rates and geopolitical uncertainties have cast a shadow over the global M&A landscape, with deal volumes dropping to $2.9 trillion in 2023, marking the lowest level since 2013. South Africa was not immune to this trend, with completed M&A transactions plummeting by almost 90% to $1.9 billion in 2023 compared to the previous year. Infrastructure challenges, including power outages, compound investor concerns already exacerbated by elevated borrowing costs.
However, Ackermann emphasizes that the outlook has significantly improved. He notes that interest rates have peaked and the power crisis is gradually abating. Despite the upcoming elections, during which some opinion polls suggest that the ruling African National Congress may lose its national majority for the first time since the end of white-minority rule in 1994, there is growing room for optimism.
Ackermann explains, “Our clients are now better equipped to gauge short to medium-term prospects, coming from a period of great uncertainty in the past 12 to 18 months. There is undoubtedly heightened interest among both our corporate and financial clients to invest capital in opportunities.” Investec, a company with dual listings in London and Johannesburg, took a substantial step towards enhancing its M&A and corporate finance capabilities by acquiring a majority stake in European advisor Capitalmind Group in the previous year, expanding its team to 200 professionals.
Amid anemic economic growth predictions, with the International Monetary Fund (IMF) forecasting a mere 1% growth rate for South Africa in the current year and 1.3% in the following 12 months, local companies are exploring offshore diversification to tap into faster-growing markets, Ackermann suggests. In 2023, South Africa experienced its slowest growth rate since the contraction of 2020, highlighting the urgency of diversifying investments.
Ackermann acknowledges that while very few South African corporations can currently afford billion-dollar deals, there is potential for increased activity in the mid-market segment. For international companies, South Africa presents enticing valuation opportunities, serving as a strategic gateway to the rest of the African continent, thanks to its level of industrialization.
Expectations point to increased interest in the pharmaceutical, retail, and consumer sectors, along with a growing focus on renewable energy and digital infrastructure. Moreover, he forecasts a strengthening of the South African rand over the course of the year, adding further appeal to potential investors. The IMF’s recent upward revision of global growth predictions for this year, from 2.9% to 3.1%, aligns with the positive sentiment surrounding South Africa’s resurgence in M&A activity. As the nation navigates economic challenges, it remains poised for a revival in mergers and acquisitions, offering ample opportunities for investors and businesses alike.
