How to navigate M&A transactions during a heated election season

Baker McKenzie's Morné van der Merwe shares some tips.

Two of Africa’s biggest economies, South Africa and Nigeria, are on the cusp of national elections in 2019.  South Africa is expected to hold national elections on May 8 while Nigeria’s have been rescheduled for February 23. 

Any election season brings with it a heightened level of uncertainty for investors as they anticipate radical policy changes that might impact future investments and wellbeing of economies.

Elections are also about politics and the proliferation of populism, which contributes to investor angst.

For example, issues such as the state being the custodian of property and land, nationalisation of the central bank, and intensified state and private sector corruption, have become hot topics ahead of elections in South Africa.

Meanwhile, talks in Nigeria have been dominated by the country’s oil-dependent economy falling into a recession after a crash in global oil prices, high levels of unemployment and an increasing number of people living in poverty.

Morné van der Merwe (pictured), the head of corporate/M&A in Johannesburg at law firm Baker McKenzie, said investors usually adopt a cautious stance ahead of the polls.

“I would be very surprised if we see a large number of new deals originating in the period running up to elections. There is a wait-and-see approach being adopted by investors,” Morné told Mergers and Acquisitions (M&A) Africa.

His views suggest that dealmakers are unlikely to make significant investments before various elections are concluded, which might impact M&A activity levels. But this is not a dead cert, as actual M&A commitments by investors hinge on election outcomes and whether such outcomes will guarantee an enabling environment for investments.

Morné said investor confidence is important as it bodes well for the flow of international investments, which boosts economic growth. Arguably this is desperately needed by South Africa and Nigeria, whose 2019 economic growth forecasts have been cut by the World Bank to 1.3 percent (from earlier estimates of 1.9 percent) and 2.2 percent (from 3.3 percent) respectively.

Despite economic pressures on both countries, Baker McKenzie is upbeat about M&A activity in 2019.

Latest figures from Global Transactions Forecast issued by Baker McKenzie and Oxford Economics indicates that the value of deals in South Africa will increase to $6.2 billion in 2019 (2018: $4.3 billion) on the back of more market-oriented policies and anti-corruption efforts under the leadership of President Cyril Ramaphosa. Meanwhile, in Nigeria, Global Transactions Forecast indicates that deals worth around $2.9 billion in 2019 are expected to be concluded, buoyed by a recovery in oil prices. Deals worth $2.7 billion were concluded in 2018.

For investors that are willing to commit to deals during an election cycle, Morné, who works with a team of 20 lawyers in his Johannesburg M&A department but also collaborates with Baker McKenzie's professionals that are based multiple jurisdictions including the rest of Africa and Europe, shares his tips:

•    Investors need to make sure that they have the right information and data to conclude deals. A successful deal starts with knowledge — real knowledge instead of perceptions.

•    If  the market doesn’t have reliable or easily accessible data, then investors must partner with the right people. “They also need to be on the ground and look for information. You need boots on the ground,” he said.

•    Investors need to have proper due diligence on issues such as laws and regulations to avoid engaging in unethical behaviour, such as corruption and bribery, to fast-track deals. Partnering with local advisory firms is important.