THE volume of mergers and acquisitions (M&A) in South Africa last year increased almost 28%, but the value remained the same as in 2010, at $16bn.

The latest statistics by information and analysis provider mergermarket revealed a buyer-friendly market and that appetite for mergers in South Africa had not been sapped by the turmoil in Europe, or by sluggish economic growth at home, where companies were sitting on cash deposits of more than R470bn which they were reluctant to invest due to uncertainty.

The statistics showed that the total number of deals in South Africa for last year increased almost 28% to 110 but the value remained at $16bn. The value of deals between $1bn and $5bn fell more than 20%.

Nevertheless, bankers are still predicting another busy year of mergers and acquisitions, although they warn that the difference between asking prices for assets and what investors are prepared to pay could scupper some deals.

In the final quarter of last year, deals worth more than R3bn were announced. According to mergermarket, this was down 29,5% on the same period in 2010.

The energy, mining and utilities sectors were the most active with deals worth $5,7bn announced for last year, accounting for 35,8% of total South African deals for the year.

Nick Altini, head of competition practice at Cliffe Dekker Hofmeyr, said yesterday the firm’s experience with deal values and volumes ties in with the statistics. "Companies do have cash and are looking for low-value investments," Mr Altini said.

He said it was also a matter of risk, with companies getting rid of assets that they were not sure of, and focus ing their attention on core assets.

The expectation for this year was that the sector would remain the most active, with merger activity in the rest of Africa and possibly South Africa emanating mostly from China — and to a lesser extent from India — rather than from the US or Europe, Bowman Gilfillan director Derek Lotter said on Friday.

He said investment focus in stricken economies such as the US and Europe was likely to be on their domestic front rather than on cross-border deals.

"The Chinese take a pragmatic view to risk, and are far less risk averse than the US and Europe — mainly because they have the money to make mistakes," Mr Lotter said.

He said one could expect "more sophisticated ways of investing" by the Chinese and referred to the recent Shanduka Group’s transaction with China Investment Corporation (CIC).

The group sold a 25% stake to the Chinese sovereign wealth fund for R2bn.

CIC will buy shares primarily from existing shareholders who want to sell their stake in Shanduka, Old Mutual Private Equity and Investec banking group.

Shanduka’s black-owned and black-controlled empowerment status would not be affected by the transaction with CIC.

Werksmans Attorneys director Shaun Teichner last week agreed that China and India would continue to be the deal drivers on the continent. He expected that the demand for resources would continue and that resource deals would remain active.

He did not foresee any real threat of companies pulling out of transactions.

By: Amanda Visser

BusinessDay