MERGERS and acquisitions (M&A) activity in South Africa continues to plummet. Total deal activity for the second quarter, including deals executed overseas by firms listed on the JSE, was estimated at R32bn, marginally less than the R35bn recorded in the second quarter last year, said DealMakers, South Africa's corporate finance magazine.
At the halfway stage during the year, however, total M&A deals of about R64bn compare poorly with the same period last year, when deals valued at R136bn were recorded. M&A activity so far this year is running at less than half that recorded over the same period last year. The number of deals involved remained much the same, reflecting the small size of transactions which companies are willing to undertake.
Deals involving black economic empowerment (BEE) companies, though continuing to be very limited, nevertheless improved to R7,7bn in the first six months this year compared with R1,2bn last year.
The half-year's single major deal was the R10bn purchase by Absa of Edcon's credit book. That was followed by the R3,4bn purchase by a consortium involving Shanduka Resources, Izingwe Holdings and the Industrial Development Corporation of a 74% stake in Scaw SA from Anglo American. Third was the R2,3bn purchase by Richtrau (read Mvelaphanda) of the remaining 78,1% of the shares it does not hold in publishing house Avusa.
The next largest M&A deal was the R2,1bn purchase by Aspen, once again from international pharmaceutical giant GlaxoSmithKline, of a portfolio of selected over-the-counter products in selected territories including South Africa, Australia and Brazil. Fifth largest was AngloGold Ashanti's purchase of the outstanding 50% stake it does not hold in the Crixas mine, Sierra Grande, Brazil for R1,8bn from Kinross Gold.
This picture is mirrored in general corporate finance activity, the index which records all work not of an M&A nature. This fell to an estimated R26bn in the second quarter this year compared with R40bn in the same quarter last year.
And total general corporate finance work in the first six months of about R42bn ran at a third of the rate achieved last year, when R127bn of work was regulated.
DealMakers said that, although these numbers are subject to final verification, the areas of greatest slowdown were by companies repurchasing their own shares (down from R32bn last year to R2bn); companies unbundling assets to shareholders (down from R27bn last year to R5bn); and new company listings, which fell from R24bn last year to R11bn in the first six months of this year.
Taken overall, the South African corporate finance industry is running at about 40% of the capacity achieved last year.
This reflects the seriousness with which the sector is confronted. Though many deals and activity may be in the "pipeline", and about which corporate financiers are understandably reluctant to comment, DealMakers said it was clear nevertheless that 2012 was fast heading towards being the worst on record for many years.