South Africa opens door to M&A into Africa

Uncertain risk landscape affects investor appetite

In recent years, a range of factors have impacted the M&A landscape in South Africa, including the socioeconomic environment, geopolitical risk, regulatory changes, technological developments, the Covid-19 pandemic and sluggish economic growth, coupled with the rising interest rates and high unemployment.

Domestic challenges such as electricity supply constraints and rail and port capacity limitations have also had a negative effect on the economy, while presenting new opportunities in the energy space.  Positions taken on the Russia / Ukraine conflict and the grey-listing by the Financial Action Task Force have also impacted investors’ appetite.

Operational resilient businesses capitalizing

But companies are demonstrating their resilience in operating in emerging markets with some capitalizing on opportunities to shape their portfolios with smaller deals rather than pursuing larger ones.  South Africa is embarking on regulatory reforms by de-regularizing the energy sector and enhancing its anti-money laundering legislation.  Changes to the Companies Act aimed at enhancing transactional certainty and beneficial ownership disclosure requirements have been enacted.  Exchange controls remain a part of deal making in South Africa and, although not an outright restriction to deals, any capital flows across South Africa’s borders must be undertaken on an arm’s-length basis and with the necessary approvals.

Merger approvals and competition law

On the competition law front, we are seeing more and more transactions requiring clearance from multiple African competition regulators and an increase in coordination between regulators in this process.  In South Africa, the focus on merger approvals continues to be on issues of public interest.   The South African competition authorities are increasingly imposing conditions on transactions to ensure local ownership, including through employee share ownership plans and to see the betterment of local South African black ownership. Having said that, the recently issued competition law exemptions, for example in the energy sector (which allows firms to coordinate conduct in certain circumstances which our laws do not otherwise allow) have opened the doors for new business opportunities and created space, especially for some international players, to combine efforts with local firms.

2024 outlook

In line with international trends, there were 24 companies that delisted from the Johannesburg Stock Exchange in 2023. We expect the delisting, take-private and leveraged buy-out trend to continue in 2024. 

Generally, with a few exceptions, South African regulators have been fairly efficient and progressive in assessing deals requiring their approval. However, in some instances, resources and capacity challenges have been cited as key obstacles to deals.

South Africa will have its next elections this year, with some commentators being of the view that there is currently no clear prediction on the front runner or outcome.