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Emus with Guerrilla Tactics

Is violence always the answer? If you consider the fact that the Australian military once went to war with the native emu population (and lost), then the answer to that question is no, probably not.

Disclaimer: gentle reader, most times when I sit down to write this column, I do so with the aim to inspire a fresh perspective on business or finance, or to draw your attention to an interesting story with a relevant lesson. This article, however, has been written purely for the purposes of unabashed glee. You will probably learn nothing useful from this article, but you will come away with one very entertaining dinner table story. 

Our story begins at the end of World War I

Australia’s involvement in the First World War had marked its most catastrophic conflict to date, with casualties exceeding those of the Second World War that would follow. 

Approximately 210,000 Australians were affected, with 61,519 fatalities or deaths resulting from injuries. Given the nation’s population of less than five million at the time, these losses were severe. Numerous veterans returned home with incapacitating injuries, hindering their ability to secure employment.

Under mounting public pressure to assist returning veterans, the Australian government devised a dual-purpose solution: they would offer employment to veterans and contribute to the nation’s food supply at the same time. The strategy involved dividing the countryside into small parcels of land, encouraging veterans to take up farming. 

Despite the enthusiasm of many thousands of veterans who accepted the challenge, the endeavour was fraught with difficulties from the start. The soil quality was generally poor, vermin posed a constant threat and most veterans lacked even basic farming experience. Furthermore, the allotted plots, which were typically around 10 acres each, proved inadequate for sustenance, let alone profitability. Nonetheless, numerous veterans were resettled across the country as part of this initiative.

Around 5,000 veterans were settled in Western Australia, where wheat was the crop most suitable to the conditions. 

From bad to worse

By the mid-1920s, it became obvious that the veteran farming initiative was a terrible idea. Tens of thousands of farmers were plunged into poverty while struggling to produce even a meagre amount of food.

Under such dire circumstances, alcoholism and suicide rates soared. Throughout the decade, wheat prices collapsed, exacerbated by the 1929 American stock market crash, which precipitated the Great Depression in Australia (and worldwide) with devastating effect. Suddenly, already diminished wheat prices halved, and Australia’s unemployment rate surged to 32%. As if that wasn’t enough, a drought compounded the hardships. 

A quarter of the resettled farmers in Western Australia abandoned their plots in frustration. Those who remained had no idea that their greatest hardship was still to come. 

Enter 20,000 emus

Imagine being a novice farmer, trying your best to grow wheat in the unforgiving landscape of Western Australia. You’ve persevered through a steep learning curve, bad soil, a freak drought and empty promises of subsidies that never came. And then one morning you wake up to find your wheat fields covered in emus. 

For those who are unfamiliar with emus, these are large flightless birds that are native to Australia. They have a similar look and build to the ostriches that we know so well, except that they are slightly smaller. Historically, Australia has had a bit of a love-hate relationship with the emu, alternating between classifying them as a protected species and vermin (probably depending on how much damage they were causing in a given period). 

Driven by the drought, increasingly large flocks of emus were migrating to Western Australia, where they found themselves in stiff competition for resources with struggling farmers. They caused so much damage to wheat crops that by 1922, their protected status was once again dropped, and the government classified them as vermin to be exterminated. Farmers took matters into their own hands but failed to make a dent in the emu numbers, as the birds were so hardy that they needed to be shot multiple times before they would die. 

Running low on ammunition and patience, the farmers turned to the government, who decided now was the time to involve the military. 

Bring in the big guns

A group of former soldiers was dispatched to meet with Sir George Pearce, the Minister of Defence. Drawing from their experiences in World War I, these veterans understood the efficacy of machine guns and requested their deployment. Pearce readily agreed, and military involvement was slated to commence in October 1932. The operation was overseen by Major Gwynydd Purves Wynne-Aubrey Meredith of the Royal Australian Artillery’s 7th Heavy Artillery, who commanded Sergeant S. McMurray and Gunner J. O’Halloran. Armed with two Lewis guns and 10,000 rounds of ammunition, they went off to war.

Assisted by local farmers, they endeavoured to corral the emus into an ambush. However, contrary to their expectations, the birds didn’t flock together but instead scattered, evading easy targeting. Later that day, when they encountered a small group of emus, the soldiers made another attempt, yet with no better outcome. Two days later, Meredith and his team meticulously laid an ambush near a dam. They lay in wait as approximately 1,000 emus approached the water. At close range, the soldiers opened fire, but the Lewis machine gun jammed after a few rounds, allowing the emus to flee with minimal casualties.

Getting an accurate assessment of the emu casualties was another challenge, as many would flee into the bush before succumbing to their injuries. By the third day, only about 30 emus had been killed, hardly making a dent in the estimated 20,000-strong population. Subsequent days saw limited success as the emus adapted their tactics, splitting into smaller groups with lookout individuals while others continued their ravaging. Meredith and his men attempted to mount the Lewis machine gun on a truck, but the rough terrain hampered their efforts, rendering that plan ineffective.

Amidst mounting negative publicity and lacklustre progress, Meredith and his team were withdrawn from the operation on November 8. The official report cited approximately 300 emus killed during the campaign.

Summarising the first offensive of the war, ornithologist Dominic Serventy commented: “The machine-gunners’ dreams of point blank fire into serried masses of emus were soon dissipated. The emu command had evidently ordered guerrilla tactics, and its unwieldy army soon split up into innumerable small units that made use of the military equipment uneconomic. A crestfallen field force therefore withdrew from the combat area after about a month.”

An astonished Major Meredith compared the emus to Zulu warriors, proclaiming “If we had a military division with the bullet-carrying capacity of these birds it would face any army in the world. They can face machine guns with the invulnerability of tanks”.

A victory of sorts

Following the military’s withdrawal, emu crop raids persisted. By November 12, the Minister of Defence authorised a renewed military effort, and Major Meredith was sent back into the field.

Initial progress was seen over the first two days, resulting in approximately 40 emus killed. However, the third day, November 15, saw a significant drop in success. Nonetheless, by December 2, soldiers were averaging around 100 emu kills per week. Meredith was recalled on December 10, and in his report, he documented 986 confirmed kills using 9,860 rounds, equating to precisely 10 rounds per confirmed kill. Additionally, Meredith reported that exactly 2,500 wounded emus had succumbed to their injuries. 

The exactness of his numbers hints at over exaggeration, but even so, using more than 10,000 rounds of ammunition to kill less than 3,500 (flightless) birds hardly feels like a sweeping victory. 

Despite the challenges faced during the culling operations, farmers in the region once again sought military aid in 1934, 1943 and 1948, only to have their requests denied by the government. Instead, the bounty system implemented in 1923 remained in place, and its effectiveness became evident: over a six-month period in 1934, 57,034 bounties were claimed. The larger issue was eventually resolved with the implementation of stronger barrier fencing, effectively preventing emus from entering farmers’ fields.

Although no emus were present to endorse the agreement, a truce was officially declared in 1999, when emus were once again designated as a protected species. Despite the eventual effect of their numbers, the emus are widely regarded as the victors of the Great Emu War of 1932.

And you thought that the spiders were the most frightening things in Australia, didn’t you?

About the author:

Dominique Olivier is a fine arts graduate who recently learnt what HEPS means. Although she’s really enjoying learning about the markets, she still doesn’t regret studying art instead.

She brings her love of storytelling and trivia to Ghost Mail, with The Finance Ghost adding a sprinkling of investment knowledge to her work.

Dominique is a freelance writer at Wordy Girl Writes and can be reached on LinkedIn here.

Ghost Bites (Grindrod Shipping | Sanlam)

Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:



Grindrod Shipping shareholders are celebrating (JSE: GSH)

Their ship really has come in, with a potential delisting on the table

With Taylor Maritime Investments holding 83.23% of the shares of Grindrod Shipping in issue, the day was always going to come where Taylor looked to finish the job of delisting the company. In a clever proposed deal structure, this will effectively be achieved with the internal resources of Grindrod Shipping via what is known as a selective capital reduction.

Essentially, the company would buy back the shares not held by Taylor, leaving no other shareholders in place and therefore no reason for the company to remain listed on either the NASDAQ or the JSE.

The price on the table is $14.25 per share and the total deal value is just under $50 million. The price is a 54.8% premium to the 30-day volume-weighted average price (VWAP) on the JSE. As juicy as that sounds, shareholders will of course still need to approve the transaction and an independent financial expert has been appointed to issue a fairness opinion. This will be included in the circular to shareholders.

The share price closed 25% higher at R249.90. This is lower than the offer price because of the risk of deal failure and the time that will be required to implement the deal.


Sanlam invests further in India (JSE: SLM)

This is a lucrative opportunity for the group

At a time when the growth story around China has been under pressure, India has been getting increasing amounts of attention as an interesting emerging market. For a South African financial services group, India seems like a logical expansion opportunity.

Sanlam has already been in India for a while now, holding significant investments in Shriram as part of a partnership going back to 2005. The group has now decided to increase its stake in both Shriram General Insurance and Shriram Life Insurance. This is being partly funded (around 60%) by a disposal of a portion of the direct holding in Shriram Finance.

The effect of these transactions is that Sanlam will increase its stake in Shriram General Insurance from 40.25% to 50.99%, as well as the stake in Shriram Life Insurance from 42.38% to 54.40%. The shareholding in Shriram Finance will dip from 10.19% to 9.54%.

This is a clever approach that requires limited additional capital (only 40% of the purchase price is new capital flowing into India) to take the stakes in two business units to controlling stakes.

The near-term impact on the net result from financial services is expected to be marginally positive for earnings and marginally negative for dividends. This is a long-term play, with India seen as an attractive market that can achieve returns for Sanlam well in excess of the “internal hurdle rate” – the return they need when deploying capital.


Little Bites:

  • Director dealings:
    • A non-executive director of Remgro (JSE: REM) purchased shares worth R485k.
  • Also at Remgro (JSE: REM), It’s rather interesting to note that Carel Vosloo, who held a lot of senior positions at RMB including co-head of corporate finance and investing banking, has been appointed as an alternate director to Jannie Durand. Vosloo joined Remgro in March 2022. Recent performance at Remgro hasn’t been acceptable, so perhaps this is a step towards trying to address that.
  • DRA Global (JSE: DRA) announced that the group CFO has resigned. He has been with the company since December 2021 and in the role of CFO since May 2022, so that’s not a long stint. The company has promoted an internal resource to Acting CFO.

Ghost Bites (Aspen | Harmony | Kore Potash | Mantengu Mining | MC Mining)

Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:



Aspen’s deals with Sandoz have achieved Chinese regulatory approval (JSE: APN)

The deals are on track to close in this financial year

Back in December last year, Aspen announced that it would acquire all the shares in Sandoz (China) Pharmaceutical Co, along with commercialisation rights and intellectual property for the established products of the company and the pipeline for the short to medium term.

As part of the same overall deal, Aspen would sell four anaesthetic products to Sandoz that are currently sold by Aspen in the European Economic Area.

As you can imagine, there are a number of regulatory approvals that need to be obtained along the way. One was for the Chinese State Administration for Market Regulation to approve the transactions. This approval has now been granted, which puts on the deals on track to be completed in this financial year.


Unions singing in Harmony (JSE: HAR)

For the first time, there’s a five-year wage agreement with all five labour unions

Harmony Gold announced a landmark five-year wage agreement that covers all five labour unions in the group. This is the first time in the company’s 73-year history that such a deal has been reached.

For planning purposes, having certainty around labour costs for five years is incredibly helpful for Harmony.

There are various elements to the deal, ranging from annual wage increases (for most workers, equal to 6.2% or CPI, whichever is greater) through to increased housing and living-out allowances.

The announcement unfortunately doesn’t indicate the overall effective percentage increase over five years.


Kore Potash appoints a CEO (JSE: KP2)

This is a big step, given the remaining uncertainty

If you’ve ever taken a risk with a business venture before, you’ll know that hiring ahead of the curve is only one of the many big decisions you need to make. Simply, you need the right bums in seats before there’s certainty over the way forward. It’s a proper chicken and egg problem.

Kore Potash has been putting tons of work into getting the Kola project to the point where there’s an agreed EPC contract and funding proposal. The slog continues, but there must be a general feeling of optimism around it as the company has appointed André Baya as CEO. He has loads of experience in Africa.

Oddly, the CEO role at Kora Potash is a non-board role.


Mantengu Mining is now breakeven (JSE: MTU)

Yet the share price has halved in the past year

Mantengu Mining is tiny. The market cap is less than R100 million, which puts it in a difficult space on the local market. Recent activity has seen the company putting together capital raises from GEM Yield funds, with a circular having been issued to shareholders in December 2023.

The major project in the group is Langpan, which has a chrome plant that was commissioned in May 2023.

The group has issued a trading statement for the year ended February 2024 that notes HEPS of between 0 and 1 cent – the tiniest of positive HEPS. That’s still a significant improvement from the headline loss per share of -12 cents in the comparable period though!

Detailed results are due for release on 29 May.


Goldway extends the time period for the MC Mining offer (JSE: MCZ)

At the 11th hour, there’s a two-week extension

The games continue around the offer by Goldway to shareholders in MC Mining, with Goldway dishing out the surprise move of extending the offer by two weeks. It was due to close at the end of this week (5 April) and previous communication was that it wouldn’t be extended.

Obviously, this is because the minimum required acceptances haven’t been achieved. The independent board notes that Goldway has notified acceptances from holders of 12.1% of shares, which equates to 34% of the shares to which the offer relates.

Of course, the real question now is whether the extension will potentially come with an increased offer that takes the price closer to the range suggested by the independent expert. The game of chess (mixed with poker) continues.


Little Bites:

  • Exxaro (JSE: EXX) announced that its special dividend of 572 cents has received SARB approval. The payment date is Monday, 13th May.
  • If you are a shareholder in AYO Technology (JSE: AYO), then be sure to refer to the latest financial statements which include a “change statement” – this means that adjustments have been made between the announcement of results and the release of the financial statements. In other AYO news, Sekunjalo Investment Holdings now has 42.8% in the company.
  • Eastern Platinum (JSE: EPS) is late in filing its audited financial statements for the year ended December 2023. Although the general public can continue trading in shares, the directors and prescribed officers of the company cannot. The company plans to file and get back on track as soon as possible, with no specific date given.
  • Conduit Capital (JSE: CND) announced that the hearing for the applications by the liquidators of Constantia Insurance Company to provisionally wind-up Conduit Capital and its subsidiary Conduit Ventures has been postponed to 2 August 2024 as the applications are opposed.
  • Tongaat Hulett (JSE: TON) has released its latest business rescue update. If you’ve been following that process, you can find it here.

Who’s doing what this week in the South African M&A space?

Exchange-Listed Companies

Old Mutual Africa (Old Mutual) is to sell Old Mutual Nigeria Life Assurance Company and Old Mutual General Insurance Company Nigeria to Emple Group, an investment company managed by Nigerian investors. Financial details were undisclosed. The decision follows a strategic review of the businesses with the key consideration to optimise capital management. The Group confirmed it would remain in Nigeria, maintaining a presence through its investment arm, Africa Infrastructure Investment Managers.

Invicta subsidiary, Invicta Global Holdings plc, has acquired a UK-based supplier of consumable parts to British and European earth moving and agricultural machinery aftermarkets. The purchase of Nationwide Bearing Company (NWB) for £12,3 million (R293,6 million) provides a platform for Invicta to grow its global Replacement Parts Earthmoving business. Aside from the synergies and cost-effective savings, NWB has product ranges which can be cross sold into Invicta’s existing operations.

Emira Property Fund, a 59.3%-owned subsidiary of Castleview Property Fund, is to dispose of a portfolio of 13 properties in Cape Town to Spear REIT. The portfolio comprises six office properties, five industrial facilities and two specialist/retail properties with the majority of the portfolio value being in office properties. The portfolio is to be acquired at no premium to its market value and is accretive to Spear shareholders from a distributable profit perspective. The R1,1 billion transaction forms part of Emira’s strategy to recycle capital. The net proceeds will be used to reduce debt and subsequently to fund new acquisitions.

In a separate announcement, Emira Property Fund disposed of Makro Crown Mines to New Order Investments 90 in a R334,5 million deal and Market Square, Beacon Way in Plettenberg Bay to Lynx Real Estate Developments for R354 million.

The saga of the off-market takeover offer by Goldway Capital Investment of MC Mining shares continues. Goldway has extended the close of its offer period from 5 April to 19 April 2024. Results of the offer will be announced on 29 April 2024. Goldway has a substantial shareholding of 76.4% but this is short of the minimum 82.19% level necessary to satisfy the ‘Minimum Acceptance’ condition for the Offer to proceed.

RMB Holdings has disposed of its 7.15% stake in Divercity Urban Property Group for R50 million. The shares, repurchased by Divercity, were at a consideration below its carrying value of R87,1 million (as per RMH’s interim results).

Unlisted Companies

Baobab Network, an early-stage investor in African startups, has acquired Reflector Marketing, a South African, strategy and branding agency. Reflector Marketing has a diverse clientele, across a diverse range of industries and spanning five continents. The agency has played a pivotal role in refining their positioning and scale by providing strategic marketing, branding and digital services tailored to individual needs.

RNR (Right Now Response), a local breakdown management startup, has raised R12 million in a follow-on investment round led by HAVAÍC. The venture capital firm contributed R10 million following an initial R9,2 million invested in February 2023. RNR provides truck fleet managers with on-demand breakdown support via its nationwide network of vetted mechanics, electricians and repair centres.

DealMakers is SA’s M&A publication.
www.dealmakerssouthafrica.com

Weekly corporate finance activity by SA exchange-listed companies

African Rainbow Minerals has, on a private placement basis, acquired a 15% stake in Surge Copper Corp. The 39,608,708 shares in the TSX Venture Exchange-listed company will be acquired at an 18% premium to the 20-day VWAP for a purchase consideration of C$3,76 million representing C$0.095 per share. Surge owns the Ootsa Property and Berg Project in British Columbia which have significant deposits of metals used as input in electrification and the low-carbon economy.

The required SARB approval has been granted for Exxaro Resources to pay shareholders a special dividend of R5.72 cents per share. The number of ordinary shares in issue as at the declaration date was 349,305,092. Payment date is scheduled for 13 May 2024.

A number of companies announced the repurchase of shares.

British American Tobacco has commenced its programme to buyback ordinary shares using the £1,57 billion net proceeds from its sale of ITC shares. The company will buy back £1,60 billion of its ordinary shares – £700 million in 2024 and the remaining £900 million in 2025. This week the company repurchased a further 880,000 shares at an average price of £24.02 per share for an aggregate £2,11 million.

In terms of its US$5 million general share repurchase programme announced in March 2024, Tharisa plc has repurchased 427 ordinary shares at an average price of R13.77 per share for an aggregate repurchase value of R5,881.00.

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 25 to 28 March 2024, a further 3,042,342 Prosus shares were repurchased for an aggregate €86,98 million and a further 235 734 Naspers shares for a total consideration of R763,6 million.

Telemasters issued a cautionary notice this week. The Company will be disposing of 30% of the shares of its major subsidiary, Catalytic Connections, to the Sebenza Education and Empowerment Trust.

DealMakers is SA’s M&A publication.
www.dealmakerssouthafrica.com

Who’s doing what in the African M&A space?

DealMakers AFRICA

Xtract Resources has entered into an option and joint venture agreement with Oval Mining, who are acting in cooperation with Cooperlemon Consultancy, to earn up to a 70% interest in the Silverking copper mine and accompanying exploration licence 26673-HQ-LEL in the Mumbwa District of the Central Province of Zambia.

Following a thorough strategic review, Old Mutual Nigeria has sold its life and general insurance businesses to the Emple Group. Financial terms were not disclosed. The group confirmed that it would still maintain a presence in the West Africa country through its investment arm, African Infrastructure Investment Managers.

Thor Exploration, the TSX-V and AIM listed exploration company currently advancing the Douta gold project in Senegal to a preliminary feasibility stage, has acquired majority stakes in two licences in southeast Senegal near to the Douta project. Thor has acquired up to an 85% interest in the Douta-West Licence which lies contiguous to the Douta project and an 80% interest in the Sofita Licence which lies approximately 20km south of the gold project.

Ghana’s Zeepay, a remittance and mobile money service company, has raised US$3 million in equity funding from Verdant Capital Hybrid Fund. The capital increase will be used to strengthen its financial position. The company, with licences in Ghana, Zambia, Ivory Coast, Sierra Leone, Gambia and Barbados, is already present in 23 countries.

OAR Resources has signed a binding agreement with Bullrun Capital Inc, Cityscape Asset and Impala Consulting to acquire 100% of Exclusive Prospecting Licences (EPL) 9652 and 9725. The EPLs are located close to Walvis Bay in the Erongo Region of Namibia and are considered highly prospective for in-demand and in-value uranium. In consideration for the EPLs, OAR will pay CAD$125,000 in cash plus four tranches of shares totalling 400,000 fully paid shares at various stages thereafter.

UAE-based Invictus Investment Company plc has completed the acquisition of a 60% stake in Graderco and its subsidiaries from Zalar Holding. No financial terms were disclosed. Graderco is a grain and cereal trading firm in Morocco which imports, stores and trades 2.5 – 3.0 million metric tonnes of grain and grain derivatives for both human and animal nutrition annually.

DealMakers AFRICA is the Continent’s M&A publication
www.dealmakersafrica.com

Executive Brief: key takeaways from the 2023 Companies Amendment Bills

The Minister of Trade, Industry and Competition has proposed the Companies Amendment Bill, 2023 (First Bill) and the Companies Second Amendment Bill, 2023 (Second Bill).

While the Second Bill proposes to amend certain provisions of the Companies Act, 71 of 2008 (Companies Act) to extend the time periods for which a court may declare a director delinquent or under probation (section 162), and the prescription period for claims against directors for loss or damages (s77(7)), the majority of the proposed amendments to the Companies Act emanate from the First Bill. From a transaction perspective, legal advisers should note the amendments proposed in the First Bill to s38 (regarding the validation of the irregular creation, allotment or issuing of shares), to s45 (regarding intra-group financial assistance), to s48 (regarding the repurchase of shares) and to s118 (regarding the application of the takeover provisions in the context of private companies).

S38 states that the board may resolve to issue shares within the classes and to the extent that the shares have been authorised by the Company’s MOI, in accordance with s36. If shares are issued but not authorised in terms of s36, or in excess of the number of authorised shares of any particular class, the share issue must be retroactively authorised in terms of s36 – within 60 business days after the date of issue – failing which, the share issue will be a nullity and any entry into the securities register will be void. The proposed amendment in s38A of the First Bill provides that, on application by the company or any party holding an interest, a court may validate the creation, allotment or issue of shares if it is satisfied that it is just and equitable to do so. This proposed change is useful to companies and shareholders which find themselves in circumstances where retroactive authorisation has not occurred within the prescribed 60 business day period.

The First Bill amends s45, by inserting s45(2A), which provides that the financial assistance provisions of s45 do not apply to the giving of a company of financial assistance to or for the benefit of its subsidiaries. The proposed carve out to this category of inter-group financial assistance should be welcomed, given the somewhat onerous requirements prescribed by s45.

In instances where a company wishes to acquire its own shares, it will no longer have to comply with the provisions of s114 and s115. The proposed amendment to s48(8) requires a special resolution of shareholders (and nothing else) if a company intends to acquire shares from a director of the company (or any person/s related to such director), or if the acquisition is not as a result of:

• a pro rata offer made to all the shareholders of the company or holders of a particular class of shares; or

• a transaction effected on a recognised stock exchange on which the shares are traded.

The result? A company will not have to obtain an expert report in respect of transactions where the company acquires more than 5% of the issued shares of a particular class of its shares. This is another welcome change, as obtaining an expert report can be an expensive and time consuming exercise, with limited benefit to sole shareholders or shareholders in a private company.

The proposed amendment to s118(1)(c) further limits the application of the takeover provisions in respect of private companies, in that the provisions will now only apply to private companies if a company has 10 or more shareholders with direct or indirect shareholding in the company and meets or exceeds the financial threshold of annual turnover or asset value as determined by the Minister.

Other noteworthy amendments and additions in the First Bill include:

• s16(9)(b), to amend the date on which amendments to a MOI take effect, namely within 10 business days of receipt by the commission of the notice of amendment, unless endorsed or rejected by the commission prior to the expiry of the 10 business days;

• s72, to describe instances where a company does not require a social and ethics committee and, among other matters, the composition and manner in which the social and ethics committee must be appointed; and

• s30A and B, which compels all public and state-owned companies to prepare and present a remuneration policy and a remuneration report in respect of the previous financial year, for approval by the shareholders either at an AGM or, in the instance where a remuneration policy was not approved at the AGM, at a shareholders meeting called for this purpose.

The First and Second Bill are currently under consideration by the National Council of Provinces.

Daniel Hart and Janke Strydom are Partners and Nolukhanyo Mpisane a Candidate Attorney | Fasken.

This article first appeared in DealMakers, SA’s quarterly M&A publication.

DealMakers is SA’s M&A publication.
www.dealmakerssouthafrica.com

Energy and materials sectors to spur Africa M&A market’s resurgence

Africa’s M&A market has experienced significant turbulence amid post-pandemic economic and geopolitical uncertainty. The renewable energy and material sectors have been bright spots, however, and seem poised to lead the market’s recovery.

The market’s downturn can be traced to the second half of 2022, when the region’s total deal value fell to US$6 billion — a sharp 62% decline compared to the first half of the year. For context, the market surged to an all-time high in 2021 – with deal values exceeding $44 billion – signalling that dealmakers were playing catchup after the initial shock of the COVID-19 pandemic had passed. The merger of the Angolan oil and gas businesses of BP and Eni contributed to this dealmaking peak.

The post-pandemic surge was followed by a reversion to more normal levels of M&A activity. Deal value in the first half of 2023 was $4 billion — a 73% drop from the first half of 2022, versus a 45% decline globally. However, the steep year-on-year decline masks the emergence of an active M&A market over the past decade, which should promote continued strength.

Several sectors in Africa have bucked the recent downward trend:

Renewable Energy. Seeking greener and more secure energy sources, investors turned their attention to Africa’s renewable energy sector. An example is the pending acquisition of BTE Renewables for more than $1 billion by a consortium formed by Meridiam and Engie. In 2022, the renewable energy sector attracted a record-breaking $118 billion in foreign direct investment (FDI), representing more than 60% of total FDI inflows to Africa. The leading investors in the sector are the UAE and India, followed by the UK and France.

Materials. Rising concerns over access to raw materials have spurred M&A in Africa’s materials sector over the past two years. So far, the largest deals in 2023 have occurred in the materials sector. China Natural Resources has agreed to acquire Williams Minerals, a Zimbabwe-based lithium mine operator, for almost $600 million. Lilium Mining acquired a 90% stake in the non-core gold mines of Endeavour Mining in Burkina Faso for $300 million.

Health Care. The pandemic underscored the need for African countries to develop the skills and capacity to independently address the health challenges of their growing populations. This realisation has attracted investors to the health care sector. A standout example is Manta Bidco’s acquisition of Mediclinic International for $2.5 billion.

Technology. The emergence of a technology ecosystem in Africa is a catalyst for transactions and fundraising in many countries. Among others, Kenya – where tech deal value spiked in 2022 – is very active in technology-driven transactions.

In 2022 and the first half of 2023, the most active countries in the region, in terms of M&A volume and value, were South Africa and Egypt, followed by Nigeria and Kenya.

Looking ahead, we see a mix of challenges and opportunities. Persistent global instability may dampen investors’ enthusiasm, leading to heightened risk aversion, especially toward investment opportunities in a continent with an extremely complex business landscape. An emerging movement toward increased protectionism among African countries could impede international investment flows to certain markets; conversely, however, it might spur transactions among African entities. The growing number of African-led acquisitions and the rise of Africa-focused sovereign funds, private equity investors and family offices underscore the potential for more locally generated M&A activity. At the same time, global players from China, India and the Middle East are steadily expanding their presence in Africa.

Several other trends and considerations are noteworthy:

Energy Transition and Infrastructure. Prominent investors may begin consolidating market shares and leveraging their regional platforms to expand their reach into the developing continent. Governments and investors recognise the need to close notable gaps in the infrastructure and energy sectors. As a result, we expect to see substantial investments in electrical grids, natural gas, renewables and green hydrogen, among other areas.

ESG. As in other regions, environmental, social and governance (ESG) factors have become key considerations in African M&A transactions in recent years. We expect this trend to persist in the long run, despite recent scepticism from some global investors about the impact of ESG constraints on companies.

Sourcing. Supply chain considerations will promote M&A investments as companies’ sourcing strategies emphasise proximity and security. Thanks to its abundant natural resources and young population, Africa is well positioned to serve as a sourcing hub for neighbouring markets. Notably, the presence of good infrastructure, attractive locations and favourable legal frameworks in Morocco, South Africa and Egypt give those nations an edge over other African countries. Consolidation among logistics players to better serve African hinterlands, known as “corridor integration”, will also lead to new deals.

Capital Availability. Around the world, private equity firms and family offices are flush with cash available for deployment. As the right opportunities emerge, the accumulated dry powder of financial sponsors, including African investors, will boost M&A activity. Although investors’ risk aversion has depressed valuations, we may see a tipping point at which low valuations entice a flood of capital. If that occurs, however, the capital influx may predominantly benefit regional players over multinational companies operating in Africa, as some of the latter are reducing their regional investment and exposure.

Against this backdrop, the energy and materials sectors, along with the broader industrial sector, will likely maintain their momentum and spur the M&A market’s resurgence. Some companies in these sectors have robust balance sheets and available cash, and they also stand to benefit from higher commodity prices. Their strong positions might lead them to recalibrate their diversification strategies in search of growth opportunities. Major industry players are likely to explore consolidating their market positions by leveraging regional platforms to expand their African presence.

Seddik El Fihri is Managing Director and Partner | Boston Consulting Group, Casablanca

This article first appeared in DealMakers AFRICA, the continent’s quarterly M&A publication.

DealMakers AFRICA is a quarterly M&A publication
www.dealmakersafrica.com

Ghost Stories Ep34: Diving into Digital Assets and Fintech (with Wiehann Olivier and Mia Pieterse of Mazars in South Africa)

There’s a lot more to blockchain technology than just the latest Bitcoin or Ether price. After the boom of NFTs and all kinds of other things during the pandemic, things clearly cooled off in this space – and for the better. In the meantime, corporates and entrepreneurs are busy in the background on tokenisation of assets to create digital assets.

In a digital economy, digital assets are important.

The Fintech space is more widely understood. But again, it goes beyond just a payments solution on your wrist or your phone. As the world becomes increasingly cashless, there’s a lot of innovation in the financial space.

To unpack these areas in more detail and to understand how use cases are developing, I was joined by Wiehann Olivier (Partner and Head of Fintech & Digital Assets at Mazars) and Mia Pieterse (Partner and Fintech Specialist at Mazars).

You can connect with Wiehann on LinkedIn at this link and Mia on LinkedIn at this link.

Listen to the show here:

About Mazars

Mazars is an internationally integrated partnership, specialising in audit, accountancy, advisory and tax services. Operating in over 100 countries and territories around the world, they draw on the expertise of more than 50,000 professionals – 33,000 in Mazars’ integrated partnership and 17,000 via the Mazars North America Alliance – to assist clients of all sizes at every stage in their development.

To find out more about Mazars in South Africa, visit:

Website: www.mazars.co.za

Facebook: MazarsSouthAfrica

X: @Mazars_SA

LinkedIn: Mazars in South Africa

SA Inc: Unlocking a Contrarian Investment Perspective

From SA Inc, to green and gold.

In the latest episode of Investec’s No Ordinary Wednesday podcast, discover the sectors that have piqued the interest of award-winning fund managers, Barry Shamley and Peter Vogel, and the factors driving their local and international investment decisions.


Also on Spotify and Apple Podcasts:

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