SUDDEN SLOWDOWN IS VERY CONCERNING
Andrew Bahlmann, MD: Deal Leaders Africa
The collapse in three sub-indices of the Absa Purchasing Managers’ Index (PMI) in September – business activity, new sales orders and inventory – drove it to a ten-year low of 41.6. This level is far below the 50-point mark which indicates contraction, and the average reading for the first nine months of this year has been the weakest since 2009.
While this index measures activity in the manufacturing sector, when coupled with other data points it shows a stuttering economy. Of concern is that the Absa PMI index tracking business conditions in six months’ time, which would be a good indicator of confidence in this the manufacturing sector, declined for a fourth month in a row.
Recall that the SACCI business confidence index fell to 89.1 in August, the lowest since August 1985 – a release that spooked markets. The factors contributing to this were export volumes, the exchange rate and share prices on the JSE.
In our own business, the biggest concern is that we are seeing a slowdown of international interest in certain industries. This is being countered by high levels of international demand and traction for South African business in the ICT and FinTech space.
While there are still transactions lined up, lenders and funders are making it very difficult to enable these to conclude. Financial acquirers are even more prudent and risk averse than a few months ago (if that is even possible!).
A critical factor affecting transactions is that a not insignificant minority – around 15% – have experienced a drop in financial performance during the transaction process. This is clearly putting pressure on concluding these deals on their original terms and is requiring innovative structures to get the deals across the line.
A further trend emerging is that the acquisition market is being dominated by private equity. Financial results from the larger listed players confirms this, as the bulk of these companies have stated unequivocally that they are now in an investment phase. With depressed asset prices, this should not be a surprise. The flipside to this coin is that trade players do not seem to be investing as they did in the past.
Looking ahead, while the statement following the ANC’s National Executive Committee meeting this week has been perceived as broadly positive, it contained very few new items or positions. All these policies boil down to implementation and, worryingly, business sentiment will not improve until we see some action.
But, there is a more complex set of factors than just local economic ones influencing sentiment. We cannot discount the trade war simmering between China and the US. The
World Trade Organization (WTO) this week cut its growth forecast for global trade in 2019 to the lowest level in a decade. In a report published on Tuesday, the WTO said trade volumes would increase by 1.2% this year and 2.7% in 2020, this after growth of 3% in 2018.
ABOUT DEAL LEADERS AFRICA
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.
By bringing on only two to three new clients a month, a professional and experienced team supports and guides the seller – and the seller only – along the daunting and challenging path of selling a business successfully. The Sandton-based advisory firm is currently managing more than 30 transactions in multiple industries, successfully attracting both local and international acquirers to its clients’ businesses. By focusing on businesses with turnovers in excess of R100 million per annum, the Deal Leaders Africa portfolio aligns to the majority of local and international investment strategies.
For more information contact:
Lunice Johnston Communication
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