Acquisitions on the agenda in 2018 - EY

A new EY survey shows that more than one-half of financial executives globally intend to pursue acquisitions in the coming year

The 16th EY Global Capital Confidence Barometer ReportCan complex geo-political uncertainty and record M&A exist? released earlier this year, reveals that 56% of executives surveyed globally intend to pursue acquisitions in the next year. According to the report, global consumer products and retail (CPR) M&A will be driven by cross border transactions, portfolio optimisation, and access to innovation.

EY followed the barometer up with two pieces of research. The first was an analysis of M&A deal activity in South Africa’s CPR sector for the last five years, ending in December 2016. The second part was an analysis of CPR M&A deal activity in the rest of Sub-Saharan Africa (SSA), excluding South Africa. The analyses show that the sector has been a growing target for M&A activity. This has largely been driven by the ongoing diversification of economic activity on the continent and a growing African consumer class.

In terms of deal volumes, South Africa’s CPR M&A – for the last five years – showed consistent yearly deal volumes averaging 58 deals each year. Most of the deals were in the $100m or lesser range, confirming a trend towards middle market deals.

The deal activity occurred in the following key subsectors:

  • Food and beverage
  • Apparel
  • Education
  • Home and personal care
  • Household furnishings and appliances
  • Retail
  • Pharmaceuticals and healthcare

CPR M&A deal volumes and value trends in SSA excluding South Africa

Deal volumes in SSA excluding South Africa, also showed consistent flow, with a higher than average yearly deal volume in the last three years, thereby showing an upward traction in the market. The average yearly deal volumes were c.45 deals in the last five years. In terms of deal value, SSA’s CPR M&A sector also showed positive traction in the last two years. Food & Beverage, Retail, and Life Sciences were the key sub-sectors that displayed deal traction.

CPR Private Equity (PE) trends in South Africa

PE firms are increasingly taking an interest in the CPR sector. According to the EY analysis, deal volume remained relatively consistent between 10 to 12 deals for the last three years ending in December 2016. In terms of value, the trend was towards middle market deals. This shows a willingness by businesses to open themselves up to external stakeholders, and indicates that businesses are focusing on capturing growth opportunities rather than retaining ownership control.

CPR PE trends in SSA excluding South Africa

At the same time, PE trends for SSA (excluding South Africa), showed a consistent trend with an average of 10 deals annually and a peak in value amounting to $213m in 2016. Key sectors witnessing deals were food and beverage, life sciences and the retail sector.

It is anticipated that M&A activity in the CPR sector will continue to grow as businesses increasingly look to capture growth, and are open to external stakeholder participation. In addition, larger corporates are increasingly considering spinning off non-core assets, which has also opened up opportunities for investors to enter the sector. Additional drivers of activity include South African companies with strong balance sheets seeking to expand their footprint into the rest of the continent. However, any growth strategy in Africa needs to take account of multiple markets, which are further complicated by language, and cultural dynamics.