M&A Mastery: Leveraging Strategies, Innovation, and Technology for Success in South and Sub-Saharan Africa

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.

Could you both share a bit about your careers in M&A?
I have been active in the South African and broader Sub-Saharan African M&A space for about 15 years. I started at Bank of America, then moved to Goldman Sachs and Barclays in South Africa. Now, I’m at Investec to help grow the M&A franchise.

Let’s set the macroeconomic table before diving into deal drivers and challenges. What are your views on the macroeconomic factors, particularly interest rates, and how they might impact deal- making in the second half of the year?

The cost of capital has been a topic of much debate and speculation over the past 12 months. Expectations have shifted, with some market participants now pushing the decrease in interest rates out to 2025. The settled view now seems to be that interest rates will remain higher for longer. This should provide a base of confidence for M&A activity, as companies can plan within a known environment rather than dealing with specific event risks.
Acknowledging that we’re in a higher- for-longer environment, people are incorporating that into their plans and taking a view on measuring their corporate activity within those parameters.

Which regions might stand out for their M&A potential through the end of the year, Ruven?
M&A activity is driven by opportunity and strategy, rather than being localised to specific regions. Factors such as balance sheet strength, macroeconomic conditions, and valuation disconnects contribute to driving M&A deals. It’s not about specific regions driving deals, but rather about companies’ financial strength, stability, and strategy in different regions and sectors.

Are there particular sectors that offer interesting opportunities for aggressive M&A growth?
Corporate simplification is one, where companies relook at their strategies, optimise operations, and simplify their businesses. Sponsor-led activity, both buying and selling, is another theme as sponsors recalibrate themselves after a slower post-COVID period. Regional economic challenges will also drive M&A as companies seek to rebalance their portfolios outside of their home markets. Valuation mismatches, where South African- listed companies trade at a discount to internationals, will further drive M&A. The TMT (tech) sector has traditionally seen high levels of M&A activity (which we expect to continue), but we are now seeing more traditional sectors like natural resources, energy, materials, and industrials getting into M&A. Overall, M&A activity is becoming broad-based across many sectors.

Can you expand on how private equity is playing a role in this environment?
Private equity in South Africa focuses more on the mid-market compared to international markets. There is a lot of dry powder, and while there is aggressive deployment, it is less publicised here.
This means that much of the significant activity doesn’t always make headlines.
 

Can you share an example of innovative deal structures or strategies that have been successful in this market environment?
Enhanced preparation is a key strategy to get deals across the line when there are pricing disconnects between buyers and sellers. What this means is that more work is done upfront before going to market, understanding dynamics, and engaging with potential buyers. Processes may take longer, but it leads to a better understanding and mitigation of potential issues. Deal structures are unique to each deal, but participation through earn-out arrangements, where there’s a meeting of minds between buyers and sellers over time rather than immediate cash flow, is common.

How are due diligence processes evolving, especially with the rise of ESG concerns and regulatory scrutiny?
Upfront preparation is crucial, focusing on the commercial sense of the deal. There is more discipline in what deals parties look at, and if it doesn’t align with their strategy, they quickly decline. ESG due diligence is now a front of mind matter and has become more important in the last decade. Furthermore, there is more proactive legal/regulatory groundwork and scenario planning around potential outcomes prior to engaging with regulators before approaching them on deals.

How are new digital tools like AI helping with the due diligence process?
Technology has accelerated, with AI integration into platforms like VDRs (Virtual Data Rooms) to process information more efficiently. It helps condense large amounts of information quickly. However, deal-making is still a human activity, and technology doesn’t replace the importance of human engagement in deals.