Artificial intelligence (AI)
The focus on AI in M&A discussions has been notable, and economists differ on its ultimate impact on economies and equity capital markets. Some say AI will amplify the division between the first world (which will benefit from increased productivity and innovation) and emerging economies, which are constrained by infrastructure challenges, less research and development (R&D), and slow diffusion.
 
Others argue that AI will be the ultimate equaliser, enabling emerging economies to capitalise on younger populations, with fewer barriers to social acceptance and the injection of supplemental skills.
 
All agree that it will lead to disruption and opportunities. Whether this plays out through corporate diversification and other hedging strategies, restructurings or simplification remains to be seen.
 
From a transactional perspective, companies are starting to negotiate the allocation of risk, particularly regarding data, AI governance and compliance.
 
Foreign direct investment (FDI)
Notwithstanding some of the more recent disposals, there has been evidence of inbound M&A activity with foreign companies looking to invest in SA assets, reaffirming the country’s position as an attractive market and strategic entry point into the continent. 
 
A recent PwC1 report indicated that net FDI into South Africa has been consistently positive since the global financial crisis (2007–2009). In 2023, FDI inflows into South Africa amounted to R96,5bn, equivalent to 1.4% of South Africa’s GDP.
 
In other parts of Africa, there has been a notable uptick in FDI from countries like Saudi Arabia, the United Arab Emirates and Qatar. 
 
International expansion
African companies are continuing to pursue international expansion for geographic diversification, fuelled by a recovering global economy and improved macroeconomic conditions.
 
Geographic expansion has its challenges, and corporates are assessing their strategies. According to KPMG’s second quarter Global Economic Outlook2, economists are predicting an adjustment to supply chains with corporates bringing production back to regions where products are sold, or countries with similar values. There are considerations pertaining to ongoing global disruption and political uncertainty as the year of elections continues.
 
Recent proposed reforms to SA exchange controls aim to encourage high-growth private equity (PE) funds and companies in technology, media, telecommunications, exploration and research and development (R&D) to establish offshore entities from a domestic base. It remains to be seen if these draft reforms will be implemented, and if they will have the desired effect. 
 
Fund managers’ reactions to recent regulatory changes empowering pension funds to independently invest offshore have, in some cases, dampened fund support of local companies’ overseas ventures, now that they can make these investments themselves.
 
African trade
The African Continental Free Trade Area (AfCFTA) is expected to further drive M&A activity from within Africa and globally. The World Bank predicts3 AfCFTA will lead to an 80% increase in intra-regional trade, reaching US$450bn by 2035.
 
SA’s first shipment and preferential trading under AfCFTA took place in January 2024. More than half of the African countries have ratified AfCFTA and are set to implement rules of origin soon.
 
Also notable is the United States’ preliminary agreement with African nations to extend preferential trade access for another decade under the African Growth & Opportunities Act (Agoa), pending Congress approval. Agoa aims to allow over 30 African countries to continue exporting goods to the US market duty-free, focusing on increased manufactured exports and modernising the current trade accord. Also notable is the agreement between the US and SA to revive the bilateral trade and investment framework agreement and the expansion of BRICS.
 
Further trends
Restructuring to avert business distress and unlock value has been pervasive. Unbundlings and the divesting of non-core assets to streamline operations and reduce debt have increased.
 
The increase in significant shareholder-driven changes underscores the active role of investors in corporate governance, with increased scrutiny on executive pay and a rise in environmental, social and governance (ESG) activism playing out in the boardroom.

There is an increasingly programmatic approach to M&A, with companies regularly engaging in M&A as core to their growth strategies by pursuing a series of smaller to mid-sized acquisitions over time, instead of occasional large, transformative deals.
 
Opportunities for PE firms are emerging in infrastructure, energy and digital infrastructure, with PE expected to play a significant role in the M&A rebound, driven by a need to divest ageing assets and a substantial amount of available capital.
 
Success factors
Key deal success factors are linked to valuations, financing and the management of the regulatory environment (competition and sector-specific). There has been an uptick in ESG due diligence and warranties, and a greater focus on the negotiation of the transitional services agreement and interim period undertakings, and supply-side risk mitigation.
 
These developments bode well for a healthy investment environment in SA and across Africa in the future. 

​

Gcabashe is Head of Corporate/M&A and Truter is Head of Knowledge| Bowmans South Africa.

​

1    https://www.strategyand.pwc.com/a1/en/press-release/south-africa-economic-outlook-april-2024.html
2    https://assets.kpmg.com/content/dam/kpmg/za/pdf/2024/Global%20Economic%20Outlook.pdf
3    https://openknowledge.worldbank.org/server/api/core/bitstreams/ef1aa41f-60de-5bd2-a63e-75f2c3ff0f43/content