By: Konosoang Asare-Bediako, Senior Investment Banker, Absa CIB

Mergers and Acquisitions (M&A) activity in South Africa is poised for a rebound as a number of factors are aligning to boost deal activity. 2023 was a challenging year, with a confluence of factors resulting in lower deal activity on the whole. This included heightened global political tension, and elevated interest rates, which were not conducive for dealmaking as valuations were pared back and borrowing costs were high. As inflation decelerates and the interest rate cycle turns, we expect M&A activity to stage a recovery in 2024.

We believe the mining, energy, and resources sectors will see the highest degree of activity. The megatrend of energy transition continues to drive the demand for “metals of the future.” Deal-flow will be driven by those who have them, those who want them, and those who discover them. We are seeing this play out with BHP’s proposed $43bn takeover of Anglo American that would bring together two global mining companies and rank as one of the mining industry’s largest transactions in years.

Copper, the world’s most important industrial metal, lies at the centre of BHP’s bid for Anglo American. It is Anglo’s rich copper mines in Chile and Peru that are the main drivers of BHP’s bid. Whilst consolidation will not build the production profile of copper and the industry consensus is that mining companies need to invest more in exploring for and developing new deposits, the challenge remains that even with the copper price on the rise, it is still below levels needed to incentivise the building of new mines.

Apart from the pursuit of “metals of the future,” there is a pressing need for South African corporates to diversify their earnings base outside of South Africa, and this will be another main driver of M&A. The challenges at Eskom and Transnet are a significant impediment to South Africa’s economic growth. This will force corporates with growth ambitions to look at outbound deals.

Here, they can look at G7 economies which hold the allure of hard-currency earnings, or at BRICS+ economies which hold the growth prospects of half of the world’s population. BRICS+ nations are keen to forge stronger economic ties amongst themselves and by increasing their membership from five to ten, their economies are now 20% larger than the G7. While its members may not have a cohesive geopolitical agenda, they are aligned and emboldened in challenging the global economic order set by the G7. We could well see BRICS+ using M&A to do this.

Whilst Russia is ostensibly excluded from the grouping for the foreseeable future, there is attractive economic growth in markets like India (6.8% in 2024/25) and China (4.6% in 2024/25). New joiners including Egypt (3.8% in 2024/25) and the United Arab Emirates (4% in 2024/25) all offer growth opportunities.

Despite some uncertainty around the outcomes of the national elections, and continued economic challenges in South Africa, there are strong catalysts for increased M&A activity in 2024. We look forward to collaborating with our clients to unlock their business potential.