File picture

Johannesburg - Merger and acquisition (M&A) volumes in emerging markets may have touched the lowest levels since 2009 in the first quarter of this year but local M&A activity is anticipated to be on an upward trend as cash continues to chase strategic assets.

A Thomson Reuters M&A preliminary report released on Friday showed that M&As in emerging markets fell by 17 percent while some developed economies registered growth levels last seen before the 2008 financial crisis.

Quarter-to-date figures show that M&A involving emerging markets reached $109.2 billion (R1.16 trillion), accounting for 15 percent of total M&A, down 2 percentage points from a year ago.

Chinese M&A activity accounted for about 42 percent of emerging market acquirors so far this year.

Registering an increase of 78 percent from last year at this time, cross-border M&A totalled $235.2bn during the first quarter of this year, accounting for 33 percent of total M&A activity this year, compared with 27 percent during the first quarter of last year.

Although South Africa has not been immune to the volatility that has hit emerging economies recently, the appetite for local M&A is seen underpinned by interest in the mining, infrastructure and property sectors.

Craig Forbes, a co-head of corporate finance at Rand Merchant Bank, expected the increased activity in developed markets to rub off on South Africa instead of the country following the downward trend of other emerging markets.

“We often do lag developed markets but would expect this uptick to apply to South Africa but with a six-month lag effect. In terms of cross-border M&A, this continues to remain fairly muted although I do expect a pick-up in inbound M&A as this year progresses,” he said.

Forbes added that he expected the current interest rate regime to contribute to increased volumes and value in the year ahead.

Shabbir Norath, the head of advisory at Nedbank Capital, said signs of revival had been observed in a number of key sectors, including mining, property and infrastructure.

“There’s definitely an increase in activity this year,” he said, pointing specifically to the mining sector where he said companies had adopted a “wait and see” attitude.

“Although M&A activity in the mining sector may not be as buoyant as it has been in the past, there are still select pockets of activity occurring in the mining space. There is also consolidation occurring in the property sector,” Norath said.

The platinum sector is one of the areas which could see mergers and takeovers as the mining companies seek ways to offset fallout from a costly wage strike, now into its tenth week.

However, Brad Webber, the head of M&A at Standard Bank, pointed out that intra-South African deal activity had been muted and this was likely to remain unchanged as local firms looked elsewhere for new investments.

Forbes expected few significant initial public offerings this year, but private equity activity would increase as a number of funds were maturing and recent capital raising exercises signalled that private equity sponsors were looking to invest. - Business Report