Merger and acquisition (M&A) activity involving local companies was worth $5.8 billion (R47.3bn) in the first half of the year, according to Thomson Reuters. The number is about half the $11.5bn announced in the first half of last year.
The value of this year’s transactions is likely to be well below the $26.8bn that was recorded last year.
The figures include all M&A deals announced, pending or completed.
Carel Vosloo, the co-head of corporate finance at Rand Merchant Bank, said a number of factors contributed to the subdued level of M&A activity.
“Many JSE stocks, particularly in the consumer space, are trading at, or close to, multi-period highs. And, if you combine this with global market uncertainty, there isn’t the necessary confidence to do anything bold, hence M&A suffers.”
Another factor holding back activity, according to Vosloo, was domestic uncertainty, “particularly in the regulated industries, notably mining, which is giving investors further reason to adopt a wait-and-see approach”.
Vosloo said, in this environment, most of the deals were “defensive or distressed transaction types, typically restructurings, divestments, defensive capital raisings, rather than front foot deals, typically acquisitions or mergers”.
Malcolm Segal, a director of Menni Investment, said there was no problem accessing funds and the dearth of activity was “quite clearly about a lack of confidence – too much noise in the system which is creating distractions – local noise and international noise”.
He said there was plenty of “dry powder” in the system – undrawn commitments held by independent fund managers.
“To this must be added the funding capacity of the banks, the private equity investment holding companies, the development funding institutions, the business angels.”
He said there were more than enough reasons for the lack of confidence, including disappointment about the global outlook and “unhelpful” domestic political processes.
M&A activity was boosted in the second quarter as a major deal came into play, the pending acquisition, announced in May, of the JSE-listed Corporate Real Estate Fund by Capital Property Fund for just more than $985bn.
The latter is a retail, corporate and industrial property unit trust and the former a real estate investment fund. It is the biggest transaction announced this year.
Also in the second quarter, Mvelaphanda announced an offer, worth $355.9bn, according to Thomson Reuters, for the entire share capital of Avusa.
The offer, made last month through Mvelaphanda Group subsidiary Richtrau 229, included cash of R24 a share and a share exchange with Richtrau.
In May, AngloGold Ashanti completed its $220bn acquisition of the half of Brazil’s Crixas Gold Mines it did not already own from Kinross Gold.
The $406bn acquisition of Optimum Coal by an investor group, made up of Piruto BV, a unit of Glencore International, and Cyril Ramaphosa’s Lexshell 849 Investments, has also been completed.
Earlier in the year, an investor group, backed by the Industrial Development Corporation, Izingwe, Shanduka Resources and the South Palace Group of Companies, agreed to acquire Scaw Metals Group, a Johannesburg-based manufacturer and wholesaler of steel products, from Anglo American for $437.2 million.