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Black empowerment expected to drive mergers, acquisitions this year
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Sanchia Temkin
Business Day
Thursday, March 11, 2010
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Black economic empowerment will continue to be a major driver of mergers and acquisitions activity this year.
Many of SA’s investment professionals in private equity expect funds to be black empowered this year, said Athol Williams, a senior partner at business consulting firm Bain.
Multiple international and local acquisitions had collapsed as a result of the global economic downturn.
“Empowerment would drive activity in the private equity sector in the next year or two,” Williams said this week.
More than R100bn was invested in the South African private equity sector, despite the financial crisis. “Although SA was not immune to the financial crisis, it was better off than other markets,” Williams said.
When the market started to pick up in SA, he said, there would be interest in investing in infrastructure and manufacturing.
Further, there would also be interest in the healthcare, retail, telecommunications, IT and financial services sectors. This was mirrored in international jurisdictions, he said.
Hugh MacArthur, global head of Bain’s private equity practice, said the private equity industry should not expect a rapid recovery. MacArthur was recently in SA on a business visit.
“Private equity is a cyclical industry. One thing few analysts expect is for the industry to return to the ‘golden age’ of bounteous fundraising, easy credit and mega-deal-making of 2006 and 2007.”
The industry first needed to overcome a period of sluggishness, he said. “Deals will come back, although they will be much smaller than before,” MacArthur said. He predicted that it would take at least half a decade for the private equity industry to recover back to the levels of 2006-07.
MacArthur said leading private equity firms worldwide were focusing on a due diligence process to bolster their performance.
A global report issued by Bain has found that due diligence is becoming increasingly important as private equity firms focus their sights on smaller companies where information is often less transparent.
The study goes on to explain that with less accommodating debt terms, it is becoming harder for private equity firms to compete against the abilities of trade buyers to generate synergies.
MacArthur said: “The best private equity firms not only have the horsepower in the due diligence room, but they also bring better processes to bear in the investment committee board room.”
The leading private equity firms tended to formulate clear investment strategies and criteria that governed their decisions and were consistent with their investment focus, the report said.
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