South Africa poised for mergers and acquisitions growth amid stable rand and global interest
South Africa is poised to experience a surge in merger and acquisition (M&A) transactions in the upcoming year due to various factors such as the stability of the local currency, heightened awareness of global conflicts, and favorable borrowing costs. Patrick Leyden, a partner at Herbert Smith Freehills in Johannesburg, highlighted that although the number of deals decreased in the previous year, the overall value of M&A transactions improved significantly. South Africa alone accounted for 30% of the volume and 60% of the value of these deals in the previous year.
Leyden pointed out that the reduction in interest rates globally has resulted in cheaper borrowing costs, making it more attractive for companies to engage in M&A activities. Furthermore, the stable global political landscape following numerous elections held last year has encouraged companies to be more mindful of political conflicts, creating a conducive environment for the local market. As a result, Herbert Smith Freehills anticipates a rise in M&A deals in 2025 both globally and within South Africa.
One key trend observed by Leyden was the shift towards strategic acquisitions aimed at immediate growth rather than longer-term investments, leading to a decline in deal volume but an increase in overall value. Despite this, foreign investors are expected to closely monitor the South African market, waiting for the promises of the Government of National Unity to materialize. Leyden also highlighted the issue of greylisting, emphasizing the importance of South Africa addressing this issue promptly to improve its attractiveness to foreign investors.
Andrew Bahlmann, the CEO of corporate and advisory at Deal Leaders International, noted that the relative stability of the South African currency amidst global volatility presents a unique opportunity for international investors interested in M&A transactions. The historically low valuation of the rand, combined with its recent resilience, makes South African assets appealing to global investors seeking value. Bahlmann highlighted that despite the rand’s reputation as a weak currency due to economic challenges and political uncertainty, current market conditions provide an opportunity for both international investors and local firms.
Bahlmann emphasized that the weak rand could benefit sectors like mining, manufacturing, and agriculture by offering favorable exchange rates to improve investor confidence. He suggested that the current environment may lead to consolidation and expansion within the M&A market as local companies seek international partnerships to overcome domestic challenges. Foreign investors, leveraging the weak rand, can acquire assets at a discount, while South African firms can access capital and expertise through such partnerships, creating a mutually beneficial relationship.
In conclusion, while the rand remains vulnerable to global economic shifts, the current circumstances present an attractive proposition for international investors looking to capitalize on the weak currency and acquire assets in South Africa. Strategic investments made during this period could yield significant returns and contribute to the long-term economic stability of the country, fostering growth and confidence in its future.
