Pick n Pay ripe for M&A deal, say analysts

While several listed and private businesses make a great value proposition for investors looking to enter the South African market, the Competition Commission could halt planned mergers & acquisitions (M&A) if they lead to market dominance.

Analysts who examined the past year in M&A in the local market say with several acquisition bids to be played out in 2024, they will be closely watching prime assets, including retail giant Pick n Pay.

Independent analyst Simon Brown said while there are no suitors at the moment, the 56-year-old retail business will be a tempting target for investors looking to enter South Africa from regions such as South America.

“One that I’m looking at is Pick n Pay. If you are a foreign player looking for entry into the emerging market, South Africa, particularly Pick n Pay, is looking really attractive. It will take a lot of work and there is no guarantee it will work, but I think a lot of M&A people could be having conversations.”

Pick n Pay has had an eventful year, from the Competition Commission approving its bid to acquire Wellington-based meat supplier Tomis for R340m in September to the death of founder Raymond Ackerman in the same month. Sean Summers returned as CEO after a 16-year absence.

Denker Capital equity analyst Muneer Ahmed said Pick n Pay needs a capital injection and an acquisition would be a good opportunity, also for the Ackerman family to diversify their wealth. “They need a bit of a capital injection. The Ackerman family still have a huge shareholding,” he said.

Consumer goods producer and I&J parent company AVI would be another appealing target for foreign investors, Ahmed said.

“The other one always spoken about is AVI, which was in talks with Mondelez, but those talks ended. I suspect it was difficult to break up the business,” he said.

Mondelez was in talks to acquire AVI’s Snackworks, whose assets include chipmaker Willards, Baker’s Biscuits and Cadbury, but they were terminated in late 2021.

Last week, hotel group Sun International snapped up Peermont, which owns Emperor’s Palace, for R7.3bn. Brown was initially concerned about the size of Peermont, but the acquisition made sense in the end.

“It actually looks like a fairly good deal for Sun International. It is a good cash-generative asset that will pay for itself. My gut response when I first looked was that it was chunky, but it looks good,” he said.

Interest from Pepkor in the beleaguered clothing retail business Edgars has been reported. Brown said he was not optimistic about the chances for such a deal as the Competition Commission could see it as creating too much dominance for Pepkor. The owner of Pep and Ackermans are most likely to have known it would be tough to obtain a regulatory nod for an Edgars acquisition.

“I don’t think the Competition Commission will allow it. If they [Pepkor] tried to buy it out of bankruptcy during the business rescue, they might have had a good shot,” Brown said.