Uncertain times seen to slow merger activity
4 June 2012

This article was first published in the Business Day

Mergers and acquisitions (M&As) were unlikely to increase within the next year in SA due to international economic uncertainty over the euro-zone financial crisis, experts said last week.

The view follows the latest data released by DealMakers last week saying the value of M&A deals in SA in the first three months of the year fell to R33bn from R102bn the previous year.

Stephen Kennedy-Good, a M&A lawyer at Norton Rose, said M&A activities were “fairly flat” but that there was some activity in the energy sector due to the focus on renewable energy.

Despite it making commercial sense in some cases, M&As could be “fairly costly” and there would always be a need to weigh up the time and effort against the benefits, Mr Kennedy-Good said.

“Where there are synergies between the two businesses, in that context, it may make commercial sense for those parties to engage with one another.”

Acquisition targets in SA were attractive to international investors as the country offered itself as a springboard for activity on the rest of the continent, said Michael Katz, the chairman of Edward Nathan Sonnenbergs.

“One of the advantages Africa and SA have in times like these is the attractiveness of emerging markets, and particularly Africa becomes that much greater in comparison with stagnant, mature markets ... in the euro zone,” Mr Katz said.

Investors “have tended to remain very cautious on entering large deals and the number of deals that could have been announced in the first quarter showed a significant fall-off,” Mr Katz said.

Interest from foreign investors in SA and Africa has been spread across sectors such as retail, mining, food and agricultural processing. Last year, Walmart, the world's largest retailer, bought Massmart for R16,5bn.

Glencore is in the final stages of its long-awaited $30bn takeover of miner Xstrata.

Last week, the merger between Pioneer Hi-Bred, one of the world's leading agri-businesses, and South African seed breeding company Pannar Seed was approved by the Competition Appeal Court. Investments worth several million rand were expected to flow into SA's seed market after the court overturned the prohibition of the merger by the Competition Tribunal.

The commission and tribunal had prohibited the merger last year, stating that it would take Pannar out of the seed market, leaving only two international players, Pioneer and Monsanto. They argued that there were other international players such as the Swiss-based Syngenta and USbased Dow Agro Sciences that could acquire Pannar.

The court ruled that the prohibition would lead to the decline and eventual demise of Pannar, together with the loss of a valuable resource, namely the germplasm developed by the company. It overturned decisions by the Competition Commission and Competition Tribunal, criticising the tribunal for its approach to merger analysis in this case.