Advisory firm Grant Thornton’s International Business Report (IBR) 2013 shows that nearly 80% of South African business executives plan to finance organisational growth over the next three years through retained earnings.

The firm indicated this highlighted a deep-seated need for greater economic certainty to prevail over a tenuous local and global economy.

The IBR indicated that South African organisations, like their global counterparts, were currently sitting on large cash piles.

“South African businesses are waiting to see when the economy will turn, when the eurozone crisis will be abated and, at a local level, companies are also waiting for stability once the 2014 South African national elections are complete,” Grant Thornton corporate finance director in Johannesburg Steven Kilfoil said.

His statement was backed by Finance Minister Pravin Gordhan’s 2013 National Budget Speech in which he stated that the world had, in recent times, become a more uncertain place for businesses, which led to some accumulating cash reserves rather than investing in new or expanding operations.

Kilfoil added that plans to finance growth through public listings or private equity transactions were becoming less lucrative options, as the report revealed that only 4% of South African businesses would consider financing growth in the next three years through a public listing, with just 22% stating that they would consider the private equity route.

The lacklustre interest in public listings seems to be a global phenomenon, with only 7% of global businesses considering this option. However, 15% of businesses in the Brazil, Russia, India and China (Bric) economies indicated that they might consider a public listing to finance growth.

“In tough times, capital markets are naturally depressed and companies, in general, are just not cash generative enough to appeal to private equity investors,” Kilfoil added.

The results from the 2013 report also showed that, of the 32% of South African companies seeking to expand through acquisitions in the next three years, 42% expected to do so through a cross-border transaction, a marginal decline from 46% in 2012, but a notable increase from 31% in 2011.

Further, 75% of respondents cited accessing new geographic markets as a key driver behind their plans to expand through acquisitions, while 52% said they were driven by the wish to expand scale. 

“As a firm, we expect cross-border activity to continue to rise worldwide in the years ahead. This, combined with South African company findings in this year’s mergers and acquisitions survey highlighting a need to access new geographic markets and to build scale, speaks very well to our cross-border expectations for the years ahead.

“I would not be surprised to see South African businesses expanding more actively into African markets in the future,” Kilfoil said.

In contrast, however, just 65% of global businesses wanted to access new geographic markets, while in the Bric economies, this figure was lower at 58%.

Access to lower-cost operations was stated by 47% of South African business owners as a key driver behind their plans to grow through acquisition, while 49% said the acquisition of new technology or established brands served as motivation.

“Wanting to acquire new technology, either through acquisition or by internal development, further reinforces how companies are investing primarily in their own businesses to strengthen current operations and improve efficiencies.

“When the global economy eventually starts to improve, businesses will certainly benefit from strong, cash-flush balance sheets, which will ultimately maximise their value on exit in the future,” Kilfoil assured.