Mastering M&A in a Shifting Landscape: Strategies for Success

The insights from these seasoned dealmakers underscore the importance of adaptability, innovation, and thorough preparation in navigating the complexities of dealmaking in South and Sub-Saharan Africa. By leveraging creative deal structures, conducting rigorous due diligence, understanding macroeconomic and regulatory dynamics, and focusing on resilient sectors, dealmakers can successfully navigate challenges and seize opportunities in this dynamic market.

Tell us a little bit more about yourself and your career so far and what it is you do?
I think my career can be summarised as having dedicated 20 years to the M&A space, spending many, many hours around negotiating tables with parties doing deals. M&A is the alchemy of money meeting opportunity.

The art and science of deal-making. Morné, let’s start off with the macroeconomic situation and forecast at the moment. We certainly started the year with expectations of rate cuts by mid-year; that’s been pushed back. When do you expect to see the macroeconomic conditions easing and interest rates declining to help provide a bit more of a tailwind for deal-making?
I think the core of the response to that is when are we going to see more certainty insofar as the geopolitical situation is concerned. We’re experiencing uncertainty around elections here in South Africa but this has been the case worldwide, with elections taking place in many countries across the globe, and then obviously also the situation in the United States and Ukraine. And until we see things settling down a bit, I think the regime that we have on the table will continue.
My prediction is that in the next six to eight months, I think we should start seeing a stabilisation of the geopolitical situation, or at least more certainty, which in turn will have an impact on recalibration to normality insofar as interest rates, etc. are concerned. And that obviously would provide a bit more confidence.

Do you think companies are going to be more offensive or defensive? And by that, I mean, often in downturns, you see companies getting rid of non-core assets. You see opportunities emerge in restructurings and maybe some consolidation in the market, versus companies that have now trimmed down, have deleveraged their balance sheet and are still trying to build up war chests to be more proactive and on the front foot. How do you see that balance evolving over the course of the year?
It’s made a lot of boards sit up and pay careful attention. The depressed market circumstances in South Africa creates risk, however depending on the angle from which you’re looking at it, it also opens up possible opportunities. But if you’re not focused on your core business, and on delivering credible return to investors, I think we find ourselves in an environment where there’s a feeling of being unsettled in certain quarters and there’s a feeling of huge opportunity in others. And it’s going to be interesting to see how it’s going to pan out. Though the BHP Anglo bid is off for now, I don’t think that that is necessarily the end of that story. It’s put blood in the water. And it’s also drawn international attention to South Africa and opportunities in the country. And that’s what I’m sensing: the change in the energy and the atmosphere. Very interesting that.

What do you see as the major risks or challenges that could face dealmakers in getting deals over the line in this environment?
Certainly the regulatory challenges that we have in South Africa. I think black economic empowerment remains a challenge for offshore investors. Not necessarily the concept. I think it’s just become very, very complicated in the way that it’s being implemented. The way that our Competition Commission’s mandate has been expanded to not only look at competition issues, but to also extend into other areas pertaining to public interest. If you put all of that together with the backdrop of political uncertainty, the challenges that we have with electricity supply, the challenges that we have with railroads and ports, it does roll up into quite a lot. You’ve got to chew through a lot of fat before you get to the steak. I’m not suggesting for a minute that investors have turned their back on the opportunities – the opportunities are here, they are strategic, and there’s good pricing in the market – [but] it does impose a certain level of creativity with deal structuring to navigate the challenges.

How does that then start feeding through more into the impact on your due diligence? Because it’s quite clear that deal makers therefore must be ramping up their due diligence efforts. What areas of due diligence are then becoming more of a focus in deal- making and earlier on in the process?
I always start with the end in mind. The expectations of experience with clients in the deal-making space is not for you to run off and regurgitate the agreements that are in play. What are clients expecting of us? Does it go into the indemnity bucket? Does it go into the pricing bucket? Does it go into the ‘deal-is-off’ bucket?
And then the other important trend in the context of due diligence that’s becoming more and more visible in South Africa, is the notion of warranty and indemnity insurance (W&I). Again, this is a way to manage risk. We are seeing that becoming a feature of South African deal-making. And the reason I’m mentioning that is because you need to make sure that when you go into your due diligence and you expect that there’s going to be a W&I insurance piece to the transaction, your due diligence needs to be structured in such a way that it has an outcome that will talk to what needs to be answered by the time that you get to the insurer.
Another aspect I want to highlight is how the use of AI in due diligence could change the game plan moving forward. We’ve started to see some of its impact, but not yet in full. AI is being used not only for document review but also to identify industry challenges. I believe this will be a significant game changer going forward. It’s very interesting.

What would your key nugget of advice be to get a deal over the line in this environment?
Make sure that you focus on the real issues when it comes to risk assessment because at the end of the day the role that we as lawyers in the deal making and the M&A space play is not only to ensure that you have a proper transaction in place, but also to ensure that when it comes to the allocation of risk and responsibility, there is absolute clarity on what the risks are and what the responsibilities are.
And keep your eye on the prize. Before yougointoadeal–Iamgoingtorepeatit again – start with the end in mind. What are the things that I want out of this deal that are non-negotiable? And what are the things that I am happy to negotiate and trade on? To have that in your mind as you go into the deal-making process is key, otherwise you risk getting sidetracked and losing focus and ultimately losing the deal.