Pepsico's Pioneer acquisition is a massive vote of confidence in South Africa

PepsiCo sees South Africa as an investment conduit into the rest of Sub-Saharan Africa.

By Andrew Bahlmann (pictured)

The deal by food and beverages giant PepsiCo to acquire Pioneer Foods for $1.7 billion is a massive boost for the economy, despite the perceived and actual political and socio-economic risks in the country and the broader region.

Read more here: Food and beverages giant PepsiCo to buy Pioneer Foods

The growth opportunities afforded by Pioneer far outweigh the risk of investment.

Add to this the fact that PepsiCo is paying a premium of 56 percent over the weighted average share price prior to the transaction being announced. If this isn't a vote of confidence I don't know what is!

While there are assets trading at very attractive valuations in South Africa, acquirers are willing to pay significant premiums – as in the case of PepsiCo – as they take long-term views as far as their investment horizon is concerned. We are seeing a growing trend with international acquirers look at far longer term investment timelines than your average local investor.

Far too often, South Africans are distracted by the noise of the daily news cycle. In this deal, and other recent ones like the buyout of Clover by Israel’s Central Bottling Company as well as Aton’s longer-term pursuit of Murray & Roberts, these foreign firms are investingdespite negative economic growth, the uncertainty surrounding Eskom, and the risk of a further investment downgrade by ratings agency Moody’s in November.

One cannot simply look at the South African ‘economy’ as a whole when making these sorts of investment decisions. One has to look at each industry in isolation and realise that every investment destination has its pros and cons.

One also needs to remember that investors weighs up relative returns in these kinds of calls. A low risk investment in the US may yield a 10 percent return versus a higher risk return in the likes of South Africa at a possible 40 percent return… These calls are all about risk versus return.

It is clear that PepsiCo sees South Africa as a strategic investment destination and an investment conduit into the rest of Sub-Saharan Africa. PepsiCo has pointed to the fact that this transaction will help it “gain a solid beachhead for expansion into Sub-Saharan Africa by boosting the company's manufacturing and go-to-market capabilities, enabling scale and distribution”.

PepsiCo’s nearly R25 billion investment into South Africa is a further boost to President Cyril Ramaphosa’s investment drive. Last year, he launched a campaign to raise $100 billion (R1.4 trillion) in investments over the next five years to help kickstart the economy. Foreign direct investment inflows more than doubled last year to R70.7 billion. This trend has continued into 2019, with the Reserve Bank’s Quarterly Bulletin in June revealing R11.7 billion in direct investment in the first quarter of this year.


Deal Leaders Africa is a boutique M&A advisory firm working with the owners of privately owned businesses to effectively manage their wealth out of their company. As the African alliance partner to the Pandea Global M&A Network, the company is capable of unlocking extensive local and international acquirer and investor networks.