Volatility after downgrades could foster mergers and acquisitions
The perception of SA as an entry point into the continent and as a destination for medium-to-low risk developing market investment could be hit, writes Morne van der Merwe
The recent credit rating downgrades by S&P Global and Fitch will affect mergers and acquisitions (M&A) activity in SA. The economy’s health and M&A activity are intrinsically linked and regional economic difficulties present challenges for deals. Most significant is the effect on investor confidence, especially the attitudes adopted in bank lending and capital markets. After Brazil was similarly downgraded, the country saw a sharp rise in the cost of capital, especially private funding and risk-based investment. Divestment also increased, especially from funds that required adequate investment grading, such as pension funds. However, the rand has shown to be far more resilient than most had expected. After a period of sell-offs and volatility, there is hope for a normalisation of the economic environment and a rally of business to restore investor confidence. This may create big opportunities for acquisitions and a shift in deal financing and buying patterns to take advantage of the...
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