ANDREW BAHLMANN: Currency weakness shaping SA cross-border M&A strategies

There are many reasons for investors to increase their exposure across borders. In Standard Bank’s recent results presentation CEO Sim Tshabalala provided the most compelling reason for SA businesses.

While the group’s results showed a 17% increase in earnings in constant currency terms for the six months to June, this translated into just 4% in rand terms because of large currency devaluations in some of its African markets.

Currency weakness is a spur to cross-border M&As in both directions. South Africans see their local value constantly diminishing because of an excessively undervalued rand, and wish to secure hard currency earnings. Foreign investors see the incredible value available in Africa, including SA. Exchange rate volatility can affect the valuation and financial outcomes of international deals. Effective currency risk management strategies are therefore essential to mitigate adverse financial effects.

In the same Standard Bank presentation the group noted that as many as 95% of foreign investors its economists asked were looking to increase their exposure to SA, with 30% of these planning to do so within the next three months. This demonstrates how positively offshore bond and equity market investors’ perceptions of SA have changed since the election.

For SA companies navigating the complex landscape of international M&As presents a unique set of challenges and opportunities. Understanding these intricacies is crucial for businesses aiming to expand their horizons beyond the continent: this often means engaging with diverse regulatory environments, cultural nuances and market dynamics. The allure of international markets can be compelling, offering access to new customer bases, advanced technologies and strategic resources. However, the process is fraught with complexities that require careful navigation.

Each country has its own regulatory framework governing M&A. SA companies must familiarise themselves with foreign regulatory requirements, which can include antitrust laws, foreign investment restrictions and sector-specific regulations. For instance, the EU and US have stringent competition regulations that can affect deal approvals.

Cultural integration is a significant challenge. SA companies may encounter differences in business practices, communication styles and corporate cultures. These cultural barriers can affect negotiations, integration processes and overall success.

Economic instability and political uncertainty can pose risks to cross-border transactions, with a need to assess the political climate and economic conditions of target countries to mitigate potential risks.

Navigating legal systems in foreign jurisdictions requires expert knowledge, and firms must ensure compliance with international legal standards and manage potential disputes that may arise during the M&A process.

One of the primary motivations for cross-border M&As is the opportunity to enter new markets. SA companies can leverage international acquisitions to gain access to new customer bases, diversify their revenue streams and enhance their global presence. International acquisitions or joint ventures provide SA firms with access to cutting-edge technologies and innovative practices. This can be particularly advantageous in industries such as technology, pharmaceuticals and manufacturing.

Successful cross-border M&A requires a comprehensive due diligence to identify potential risks and opportunities. This includes financial, legal and operational assessments of the target company. Engaging local advisers and experts in the target market can provide valuable insights into regulatory requirements, cultural norms and market conditions. Developing a detailed integration plan is essential for smooth post-merger integration. This plan should address cultural integration, operational synergies, and alignment of business strategies.

There have been some successful cross-border M&As involving SA companies, which provide valuable tips. For instance, in 2001 Naspers acquired a 46.5% stake in Tencent for $32m, a move that seemed risky at the time but ultimately transformed the group. Tencent has since grown into one of the world’s largest technology companies, increasing Naspers’ market value. By 2024 Tencent’s valuation had skyrocketed, turning Naspers’ initial investment into one of the most lucrative cross-border deals in history.

This example demonstrates the potential of strategic investments in high-growth technology sectors. SA companies can look to similar opportunities in emerging markets or innovative tech companies to achieve substantial returns.

In 2016 AB InBev completed the acquisition of SABMiller for $103bn, creating the world’s largest beer company. This deal allowed AB InBev to expand its footprint into emerging markets where SABMiller had a strong presence, such as Africa and Latin America. The acquisition enabled the global brewer to leverage SABMiller’s local expertise and distribution networks.

For SA companies acquiring or merging with a company that has strong local knowledge and market presence in emerging regions can provide strategic advantages and access to new growth opportunities.

SA real estate investment trust Redefine Properties successfully expanded into European markets, including investments in retail and office properties across key cities. This expansion allowed Redefine to diversify its portfolio geographically and benefit from the stable and high value European property markets.

These examples highlight the diverse strategies SA companies can adopt for successful cross-border M&As. Whether through strategic investments, large-scale acquisitions, joint ventures or market diversification, the key to success lies in identifying opportunities that align with the company’s strengths and long-term goals.

By learning from these successful cross-border M&As and ensuring high-quality advice, SA firms can better navigate the complexities of international expansion and achieve meaningful growth in the global marketplace.

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