New investments take back seat

In a climate characterised by uncertainty in major western European economies and concerns about the fiscal challenges in the US, companies appear to have applied the brakes on new investments.

As such, the pipeline of mergers and takeovers in the coming months is likely to be slow.

For South Africa, the climate is made more complicated by the resurgence of labour unrest on the country’s farms, a development that threatens to give investors pause.

The world is already experiencing a downward trend in the volumes and value of mergers and acquisitions (M&A), according to the latest figures.

The latest M&A report from information provider Zephyr, published by Bureau van Dijk, this week showed that the value of global M&A fell for the fifth consecutive year, with 65 060 transactions worth a combined $3.144 billion (R27.076bn).

Separately, a report from the Mergermarket Group showed that 2012 African M&A activity was little changed from the prior year, amounting to $32.7bn, up 4.1 percent in deal value compared to 2011.

But on a quarterly basis, African M&A activity in the last three months of 2012 marked the best quarter in more than two years, totalling $15.9bn.

Energy, mining and utilities was the most active sector by deal value in 2012, with $14.9bn in deals representing 45.6 percent of total African M&A.

Although the figures for African M&A may point to continued interest for opportunities in Africa, investors are being measured in terms of what deals they pursue as they await the underlying uncertainty in the global economy to lift.

Charles Barlow, the head of M&A in new markets at Renaissance Capital, said there is a lot of uncertainty, and uncertainty often puts the brakes on M&A activity.

He said global events were going to dictate investments and deal making in South Africa this year.

Developments on the domestic front would also weigh heavily on the prospects for deals.

“While South Africa is an African country, there is no question that what happens in the Western markets, particularly Western Europe has a major impact on us, because these markets are huge export destinations for South African companies,” Barlow said.

“At the same time, while there is uncertainty in the major Western economies, investors will hesitate to invest, which will impact inward investment into South Africa,” Barlow said.

He added that “we shot ourselves in the foot” with the violent strike actions that took place in 2012.

The only mitigating factor, according to Barlow, is the strength of the equity markets, something that might give companies greater confidence to pursue strategic deals.

The JSE has been rallying over the past year to record highs, thanks to the increased risk appetite of investors looking for diversification as developed economies continue to struggle.

In 2012 deals involving African companies fell 6 percent to 757 in 2011, according to the Zephyr data.

But private equity deals were the only winners in global deal-making last year and they recorded the best performance since 2008.

A total of 7 793 global private equity and venture capital-backed deals were recorded to the tune of $321.3bn.

This represented a 7 percent increase in value year on year.