While the global and domestic economic slowdown has had an impact on mergers and acquisitions (M&A) in South Africa, the M&A market in this country and across much of Africa, remains extremely dynamic and, in most cases, relatively robust.
That said, there are still challenges that could result in shifts in the overall deal trends currently evident in the country. These challenges are very diverse, ranging from the potential for changes in local or global economic environments, to shifts in the regulations governing everything from BEE transactions to corporate restructuring and foreign direct investment.
Despite this, M&A remains an effective way of boosting corporate performance and enhancing the competitive position of businesses. This potential has repeatedly been borne out by the success achieved by some of SA's most recognisable brands that have included M&A as an integral component of their corporate strategy.
In many ways, organisations like MTN, SABMiller, Bidvest, Hudaco and EOH, serve as excellent examples of the correct way to approach M&A particularly when it comes to overcoming the significant challenges so often posed by post-transaction integration.
Common thread
In Nedbank Capital's experience, the common thread that runs through all successful M&A transactions is that they are undertaken for the right commercial reasons. Possibly more important is the fact that these reasons are clearly articulated as transaction objectives, prior to any acquisition even being considered.
This is particularly important in the South African context where transformation considerations are often central to M&A activity. In these instances, it is especially vital that the acquiring company has a full understanding of its transformation strategy and knows precisely how the planned transaction fits into, and facilitates, this strategy.
Once the primary objective of the planned merger or acquisition is bedded down, there are a number of other requirements that must be met if the transaction is to succeed and deliver maximum value for all stakeholders.
Firstly, the entire process must be undertaken with the utmost discipline, especially by the acquiring business.
Then there's the importance of ensuring the proposed transaction has the full buy-in of the boards and management structures, preferably of both parties, but especially of the acquirer. The most carefully considered and meticulously planned M&A transaction can quickly be scuppered by even a hint of top level dissent.
Interests of shareholders
Of course it's not only management that needs to be on board. Depending on the type of businesses or transaction involved, it is important to align the interests of shareholders with the needs and preferences of other stakeholder groups. While it is obviously not possible to please all of the people all of the time, comprehensive stakeholder engagement throughout the process inevitably raises the potential for long-term post-acquisition success.
The final piece of the M&A success puzzle is undoubtedly having a clear plan in place for post-acquisition integration and implementation. Many acquirers make the mistake of planning only as far as the moment when the deal is done. However, it's often the months after the parties sign on the dotted line that can make or break the success of the transaction. For this reason, at Nedbank Capital we encourage and recommend that our clients develop a detailed 100-day strategy for this post-acquisition implementation as an integral part of their upfront acquisition plan.
Typically, a failure by any of the parties involved in an M&A transaction - but particularly the acquirer - to adhere to any of these fundamental principles is the primary reason behind the failure, or under-performance, of the resulting entity.
Given the likelihood of growing demand for African M&A opportunities - particularly in industries like agriculture, resources, energy and infrastructure - the ability to make a success of an M&A transaction could well become a vital component in the future success and growth of many businesses on the continent.
