Merger and acquisition (M&A) activity in South Africa and sub-Saharan Africa has been slower in the past year due to factors such as unreliable electricity supply, geopolitical uncertainty, supply chain blockages, and global economic conditions. However, private investors are expected to see an increase in M&A activity in the coming months, although the exact timing is unclear.
In sub-Saharan Africa, the value of announced mergers and acquisitions in the first quarter of 2023 was $2.9 billion, 80% less than the value of deals announced in the first quarter of last year and the lowest value for a first quarter in twenty years. The volume of deals in the first quarter also declined by 30% compared to 2022, registering a nine-year low.
In South Africa, deal activity and volume were down when comparing the first quarter of 2022 with Quarter 1 of 2023. The largest deal by value for the quarter, and the only BEE deal, was the disposal by Barclays of a 7.4% stake in Absa, valued at ZAR 11,6 billion.
Current macro and microeconomic challenges have required resilience and adaptability from investors, leading to changes in the structure, pricing, and length of deals, the implementation of new financing methods, effective risk management, and an increasing focus on environmental, social, and governance (ESG) issues.
However, global geopolitical uncertainty will continue to impact M&A transactions in Africa in 2023, but there is a growing focus on green, low-carbon, and sustainable initiatives in Africa.
ESG elements have been incorporated into general investment considerations for some time, but they are no longer just-to-haves. Factors considered include energy efficiency, community healthcare, staff training and qualifications, greenhouse gas emissions, governance, inclusion and diversity, social impact, and litigation risks.
Global businesses are also investing in resources to take action on diversity, equity, inclusion, and belonging, both in the workplace and in the ownership of business assets.
Equal representation and a focus on real diversity and inclusion are essential for the implementation of sustainable business practices.
Black Economic Empowerment, a particularly South African ESG factor, requires sustainable forms of implementation to increase turnover and ensure sustainability. These developments are expected to lead to a growing number of sustainability-focused investments in the region in the future.
By: Angela Simpson and Lydia Shadrach-Razzino
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