The global slowdown in M&A activity has been felt in South Africa, with the macroeconomic factors of high inflation, high interest rates, and lower economic growth being the key factors, says the global law firm Clyde & Co.
In its “Insurance Growth Report 2024 Midyear Update”, Clyde & Co says that the muted M&A market has been further exacerbated by energy-generating issues and political uncertainty before May’s elections. The greylisting of Africa’s largest economy by the Financial Action Task Force in February 2023, due to concerns about the nation’s ability to combat money laundering, has also given investors cause to pause.
There is also increased regulatory scrutiny, with a stronger emphasis on public interest considerations. The South African Competition Authority has introduced merger conditions to impose local ownership requirements and employee share plans to incentivise the participation of previously disadvantaged individuals.
The report added, “We’ve also seen conditions imposed regarding sustainability, such as reduction of carbon emissions. However, there are green shoots. M&A enquiries have increased, particularly in the broker and MGA markets.”
Outlook
Mr Ernie Van Der Vyver, Clyde & Co partner in Johannesburg, said, “The South African financial service industry is well-developed and financially sound, and although investments have been slow, the major players are actively looking for opportunities. There are also a number of major large multinationals that hold a long-term view of South Africa, and they will continue to make acquisitions."
He added, “While we may not see a dramatic increase in M&A activity over the next 12 months, there will definitely be an uptick given the financial soundness of the South African insurance and financial service providers in general.
“I expect that the target area will be to grow distribution. And the easiest way to achieve that is by acquisitions. There are a number of large brokerages in the market, as well as underwriting managers, and I expect acquisitions in that space.
“A further growth driver is in the embedded insurance space as technology providers are expanding their integration capabilities and would be looking for partnerships with insurers.”
Volume of M&A deals completed globally
Region
|
1H2024
|
2H2023
|
1H2023
|
Asia Pacific
|
23
|
23
|
29
|
UK & Europe
|
31
|
59
|
48
|
Americas
|
44
|
83
|
79
|
MEA
|
8
|
6
|
9
|
Total
|
106
|
175
|
171
|
Source: Clyde & Co
|