South Africa Eyes M&A Revival amid Economic Recovery Hopes for 2024

South Africa is poised for a resurgence in mergers and acquisitions (M&A) activity in 2024, as Investec Plc identifies encouraging signs of an economic rebound within the nation's $405 billion economy. Following a steep decline in completed M&A deals by 90% to $1.9 billion in 2023—a low unseen since 2013 due to high interest rates and geopolitical risks—there is a burgeoning sense of optimism. Marc Ackermann, the driving force behind Investec's corporate finance and the shared leader of investment banking, is confident about the outlook for M&A deals, expecting them to surge by as much as 15%.

South African companies now harness a newfound vitality, aiming to stretch their wings across international borders, benefiting from the improved global economic indicators. Conversely, international corporations are exploring the South African market, which presents a trove of attractively priced local assets. Investec, listed in London and Johannesburg, has been fortifying its team in anticipation of this upsurge, notably acquiring a majority stake in the European advisory firm Capitalmind to expand its M&A and corporate finance division to a robust contingent of 200 professionals.

Despite persisting challenges such as a looming national election that may see the ruling African National Congress lose its longstanding majority—an event that could introduce some volatility—the medium-term prospects lead to sustained optimism. The stabilizing power crisis and a turnaround in interest rates have further enhanced this environment of certainty and confidence.

South Africa's projected economic growth at a sluggish pace of 1%, as per the International Monetary Fund (IMF), suggests a gradual recovery. However, the forecast for global growth has received an uplift from the IMF, now anticipated at 3.1%. This global scenario is enticing South African companies to seek diversification abroad for better growth prospects, with implications for the M&A landscape. They see opportunities in regions promising quicker economic advancement than the anticipated slow recovery at home.

The thirst for diversification is not just a local phenomenon but is mirrored by global companies looking to invest. South Africa's advanced industrial sector renders it an attractive gateway for investors aiming to penetrate the broader African market. Investment interests are particularly noted in sectors such as pharmaceuticals, retail, consumer goods, as well as renewable energy and digital infrastructure. These are areas that are gaining traction and are expected to attract increasing investment as part of the M&A revival.

Ackermann also predicts the strengthening of the South African rand over the course of the year, which may contribute positively to the M&A climate. Although the mega deals may be sparse, with few South African corporates possessing the capacity for billion-dollar acquisitions, it is the mid-market segment that may display a substantial increase in M&A activity.

The forecasts set the stage for a renewed dynamism in South Africa's M&A sphere, offering a beacon of hope for economic growth and an expansive future for local businesses on the global stage.