There is something magical about putting commercial transactions together and implementing them.
It feeds into the primary instinct of people to constantly strive for growth and advancement. Unfortunately, the outcome is not always win-win and sometimes one is faced with a win-lose situation.
Before I provide my view on M&A activity, it is important to understand the context from which I will be providing my view.
We are a small firm practising corporate and commercial law. Our typical sweet spot of transaction value is between R75 000 000 and R750 000 000. There are, of course, smaller and larger transactions as well. Most of our transactions fall in the unlisted securities environment.
From a subjective firm perspective, we experience year-on-year growth of about 15% in M&A activity.
We get the sense that the economic climate is generally improving as far as businesses are concerned. That being said, although the environment is getting better, the economic growth is not what it could be, which is essential for M&A activity.
If one is to look at the data over recent years, it is clear that the flow and value of transactions is not what it was during the peaks of 2007, 2008 and 2009 and the lows which South Africa is currently experiencing are analogous to the lows that the country went through roughly 10 years ago.
Furthermore, if one does an analysis over a 20-year period it appears that deal flows and values seem to generally trend with “troughs” and “waves” spanning over 10-year periods at a time. In this regard, I would say we are experiencing a cyclical “trough”.
To sum up, it is my view that the flow of mega deals will be slow for at least the foreseeable future. However, we can be sure that there will be an increase in deal flow in respect of the medium band transactions.
It is also promising to see an increase in the type of M&A activity as far as international investment is concerned, as well as acquisition for growth.
When the economy was at its lowest, from 2008 to 2011, there tended to be more mergers due to companies being forced to optimise on synergy advances and company restructurings.
The current type of M&A activity (acquisition for growth) is definitely an indication that the flow in M&A activity will increase. The signs are there and I believe that there will indeed be a year-on-year positive increase in deal flow.
As a final remark, where I believe the legal profession can meaningfully contribute to the growth in in M&A activity, and inevitably the economy of this country, is by continuing to strive to strike the fine balance between mitigating clients risks without burying good commercial transactions in paperwork.