Consider M&A as a growth strategy, says Nedbank Business Banking
The pandemic-generated financial crisis is expected to create alpha companies
A year after Covid-19 started to disrupt our lives, and with the turmoil that the second wave of infections is causing, it is difficult to base any growth plans on the overall expected GDP growth.
However, given the contraction in the economy experienced in 2020, growth must be a theme for 2021. An important lever for growth has resulted from the pandemic’s impact: in April 2020, the Competition Commission said it expected a surge in mergers & acquisitions (M&A) after the pandemic had taken its course.
This is a global expectation, with analysts suggesting that the pandemic-generated financial crisis will create so-called alpha companies: large, mature and cash-flush companies in a strong position to buy out their competitors.
There are still headwinds awaiting many businesses, especially those less able to adapt to the new normal. This creates opportunities for these alpha companies to step in and target businesses affected by the pandemic fallout. Add unfavourable gearing to this scenario, which further diminishes the balance sheet, and the weaker companies become prime targets for competitors to drive growth.
The type of industry in which the target company operates, the risks and opportunities presented by the pandemic, and the nuances of the SA economy, need to be carefully considered as these are pivotal to the decision to proceed and the structuring of a transaction.
Considering the synergies such as cost, technology and culture between the two companies is imperative. They must be clearly identified and distinctly linked to balance sheet and income statement benefits. A clear understanding is needed of how the transaction will change or augment the acquiring company’s position in its value chain, as well as any contingent liabilities and risks embedded in the transaction.
The Nedbank Business Banking specialised finance team is well positioned to help these companies grow through M&A and general expansionary finance.
The division is highly skilled, with collective experience exceeding 100 years in bespoke structuring of leveraged transactions. Through their rich skills and experience, this team offers industry-leading debt structuring services to help businesses with the decision-making, derisking and structuring of transactions to ensure sustainability. Through an extensive network established in the market, they also have substantial experience to support corporate actions such as listing, delisting and trade sales.
For more information, call Greg on 083-325-0148 or e-mail GregoryC@Nedbank.co.za or contact any of Nedbank Business Banking’s regional specialised finance principals below:
Richard Schram: +27 (0) 83-679-0486 | RichardSc@nedbank.co.za
Stuart Bradbury: +27 (0) 83-626-9925 | StuartBr@nedbank.co.za
This article was paid for by Nedbank Business Banking.
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