Global law firm Baker McKenzie says poor merger and acquisition (M&A) deal values in South Africa for 2018 resulted from the economy’s dismal performance and the risk-off sentiment towards emerging markets in general.
According to the Global Transactions Forecast (GTF), issued by Baker and Oxford Economics, just $4.3-billion of M&A activity was concluded in South Africa in 2018.
However, 2019 looks set to offer an improvement in M&A activity in the country, with total M&A deals expected to reach about $6.2-billion, says Baker McKenzie M&A head Morne van der Merwe.
He noted that signs of more market-orientated policies and anticorruption efforts under President Cyril Ramaphosa’s leadership should lead to economic recovery.
He added that some of the deals that were announced in 2018, but not finalised, were expected to now go ahead, contributing to a higher volume and value of M&A activity this year.
The GTF found that South Africa had concluded $7.5-billion worth of deals in 2017, dropping to $4.3-billion in 2018, and subsequently predicted a 2019 figure of $6.2-billion and a drop again to $5-billion in 2020 and $4-billion in 2021.
In terms of deal volume, 182 deals were concluded in 2017, decreasing to 136 deals in 2018. In 2019, deal volumes are expected to climb to 199, with a small drop to 178 in 2020 and a bigger drop to 159 in 2021.
“With the world economy cooling from 2019, the GTF predicts global M&A values will decrease in 2020. South Africa’s slight drop in M&A activity in 2020 and 2021 is partly because it is following this global cycle.
“The good news is that the forecast also predicts a new global upcycle could begin in 2021, and South Africa could see the benefit of that in future years,” says Van der Merwe.