Deal Makers
Results have shown little change and shareholders are no longer seeing the growth they have in the past, writes MARYLOU GREIG
LOCAL merger and acquisition activity continued to mark time with results for the year to end-June showing little change year on year.
LOCAL merger and acquisition activity continued to mark time with results for the year to end June showing little change year on year. In the first six months, 132 transactions were announced valued just short of R100bn with no industry in particular standing out as the favoured sector.
Deals in the R500m and below value category characterised transactions. PSG Capital managing director Johan Holtzhausen says there is a definite sense that investors are more tentative. And while the interest is there, the time taken to close deals is longer.
The trend, started in the first quarter of the year, which saw South African corporates going offshore, continues. Inward listed property companies which are euro and pound denominated remain attractive investments.
Hugo Steyn, head of corporate finance at Investec, says in the past companies have pulled a lot out of the capital markets but the ability to do this has become more difficult. While there have been some IPOs, the market is expensive which has seen some listing put on hold. Shareholders are no longer seeing the growth they have in the past, particularly in property which has seen a dramatic increase. Shareholders, says Steyn, are taking a breather.
Contentious regulatory legislation continues to hinder activity says Steyn. Regulatory approval is taking too long in some industries placing deals in limbo for up to 18 months which itself leads to complications. Such a situation is not commercially viable and results in parties walking away.
Holtzhausen says activity in the next six months will be driven by consolidations, a few listings and transactions carried out by smaller unlisted companies. Steyn agrees and adds that deals in the R500m to R1bn range are in demand, particularly by the increasing number of smaller private equity firms. The challenge is to find them.
A handful of large transactions boosted the quarter’s results. Brait was particularly active acquiring a 90% stake in New Look Retail Group for R14,6bn and an 80% stake in Virgin Active for R12,1bn. Mediclinic International expanded its offshore footprint with the acquisition of a 29,9% stake in UK group Spire Healthcare for R8,6bn. Locally, Sun International made an offer of R9,4bn for Peermont Group.
That there are deals out there to be done is not denied; getting them to a state of closure is another thing. With the current state of the economy, labour inflexibility and stiff regulatory hurdles, it is little wonder that investors are watching and waiting.