ANDREW BAHLMANN: Spate of elections set to hold back M&A deals

As the first quarter of 2024 settles into a holding pattern there are already a number of major mergers & acquisitions (M&A) in play in SA, with corporates trying to read the tea leaves. There’s the anxiety associated with about 50 pivotal international elections — not least of which is SA’s own. There’s also the issue of two wars and a real estate and banking crisis in the world’s second-largest economy.

Many analysts now believe a second Donald Trump presidency to be all but inevitable, with his first term having been erratic, uncertain, disruptive and inflammatory. Ahead of his first election, Intralinks in the US surveyed M&A professionals around the world to gauge their sentiment about the election’s potential effect on M&A and found it invariably negative. For instance, up to two-thirds in the Asia-Pacific region thought Trump would be bad for deal making.

SA itself could be in far worse shape after the election if the ANC loses its majority and becomes reliant on parties such as the EFF, which is even more anti-business than the ANC.

There appear to be tectonic shifts in world politics. Whatever one’s own brand, a period of transition may be painful as we see a global shift to the centre right accompanied by populist, libertarian and even anarcho-capitalist leaders.

Business faces a daunting task of navigating through this uncertainty. The outcomes of these elections have the potential to disrupt trade patterns, alter foreign direct investment flows, and significantly affect M&A activity.

Geopolitical uncertainties have become a constant feature of the global business environment. From trade wars and diplomatic tensions to regulatory changes and political instability, businesses must contend with a multitude of factors that can shape their strategic decisions. This year’s elections across various regions introduce an added layer of complexity, as the outcomes could herald significant changes.

It’s understandable that some businesses may opt for a cautious “wait and see” approach in committing to M&A deals — holding off on making significant investment decisions until the outcomes of elections or geopolitical events become clearer. While such an approach can offer short-term risk mitigation benefits, such as avoiding potential disruptions and unforeseen regulatory changes, it also presents several challenges and drawbacks that could affect long-term corporate growth prospects.

One of the primary risks associated with delaying M&A decisions is the potential for missing out on valuable opportunities for strategic expansion. In fast-paced industries or emerging markets, where opportunities arise and vanish quickly, hesitation can result in competitors securing key assets or gaining market dominance. This could hinder a company’s ability to achieve its growth targets and strengthen its competitive position in the long run.

Delaying M&A decisions can contribute to prolonged strategic uncertainty within an organisation, affecting long-term planning and growth prospects. Without a clear road map for expansion or strategic direction, businesses may struggle to allocate resources effectively, pursue new market opportunities, or invest in innovation. This can impede a company’s ability to adapt to changing market dynamics or capitalise on emerging trends, hindering its competitiveness and resilience over time.

Every day spent waiting for clarity on geopolitical developments represents a lost opportunity to deploy capital effectively. While awaiting election outcomes businesses may miss out on potential synergies, cost savings or revenue growth opportunities that could have been realised through timely M&A transactions. This opportunity cost can diminish overall returns on investment and hinder the company’s ability to generate shareholder value over time.

There’s another approach. Forward-thinking enterprises may opt to proactively adapt their M&A strategies to navigate such geopolitical turbulence. By conducting comprehensive risk assessments, scenario planning and due diligence, these businesses can identify opportunities amid chaos.

Moreover, strategic diversification, including exploring alternative markets and investment destinations, can help mitigate geopolitical risks and enhance resilience. By leveraging scenario planning techniques, businesses can anticipate various outcomes of geopolitical events and develop contingency plans to mitigate risks and capitalise on opportunities.

Proactive companies demonstrating agility and flexibility in their M&A strategies typically stay attuned to market trends and developments, and seize opportunities as they arise. Their M&A strategies are tied to a long-term strategic vision, aligning their investment decisions with overarching business objectives and growth aspirations. This involves considering future challenges and opportunities.

There are of course a number of key considerations inherent within an M&A strategy. They need to assess the potential effects of election outcomes on trade policies, regulatory frameworks and market access, while staying abreast of political developments and engaging with relevant stakeholders to anticipate regulatory changes that could affect M&A transactions.

Fluctuations in currency markets can significantly affect deal valuations and financing arrangements. Acquirers should consequently implement robust hedging strategies and consider currency risk mitigation measures to safeguard against adverse exchange rate movements.

They should stay on top of geoeconomic trends, including shifts in supply chain dynamics. M&A strategies have to adapt to capitalise on evolving market dynamics and align with broader geopolitical trends. Companies must develop contingency plans and risk mitigation strategies to address potential challenges and safeguard investment returns.

In a world characterised by geopolitical uncertainty, M&A decision-making requires a delicate balance between risk aversion and strategic agility.

• Bahlmann is CEO: corporate & advisory at Deal Leaders International.