EMPOWERMENT will continue to be a steady driver of merger and acquisitions (M&A) activity next year as black ownership remains a priority, legal analysts say.

Black economic empowerment restructuring, opportunistic acquisitions and corporate restructuring were keeping M&A comparatively active, Morné van der Merwe, a senior director in commercial law firm Werksmans Attorneys, said yesterday.

Van der Merwe attributed the current hiatus in deals to unsettled markets. “Assets are priced more cheaply, but deal makers are waiting for the market to settle at a level that allows for more prediction and pricing.”

Few companies were willing to borrow to do deals, and those who were able were finding it difficult to access borrowings, he said.

Foreign banks and private equity firms had withdrawn from the market, and as they were a fertile source of capital in the past any deal that required substantial funding had had to be postponed or cancelled, he said.

“Foreign finance is simply unavailable, and even local finance is difficult. Banks are unwilling to lend for more than one year because in the current uncertainty they can’t predict what the debt markets will be like in a year,” Van der Merwe said.

He said there were some market players with cash available and businesses were priced to sell.

However, the market was waiting for stability, which he predicted would happen within a few months. Some resources companies were trading at less than a third of what their value was just four months ago, and marginal mines were being decommissioned.

“We’ve seen quite a recovery in the midsized deal space, and even the big deals will pick up rapidly once the markets settle down.”

This cautiously bullish outlook contrasts with the general gloom in the industry, where some analysts anticipated figures might be as much as 60% down for the year.

However, Van der Merwe said that his sense of upturn came from his involvement in many of the big deals in the marketplace that had taken place over the past 18 months.

For instance, the firm was involved in the MTN and Reliance Communications negotiations, a deal reported to be worth about R30bn.

Most of the large law firms were involved in mega-deals this year rather than midmarket deals. The mega-deals that Werksmans Attorneys were involved in were worth billions of rands.

M&A activity for the first half of the year remained constant in spite of a marked drop in the size of announced deals, according to data from information and analysis provider Mergermarket.

The South African market had, to a certain extent, been sheltered from the global credit crisis but the rising cost of debt had been one of the obstacles to M&A activity, the report said.

A number of changes to SA’s corporate laws, such as amendments to allow a company to provide financial assistance to empowerment partners to take up shares, were also expected to affect deal flows.

However, legal analysts said that the extent to which the changes would lead to more deals in the future still remained to be seen.

Posted to the web on: 2008/12/19 by Business Day