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Deutsche Bank Extends South Africa M&A Streak With Beer Megadeal

  • German lender grows even as South Africa’s economy shrinks
  • Retail, industrial, real estate might see deal activity in ’17

Deutsche Bank AG is heading for its best annual performance in South Africa after winning a key role on the biggest beer acquisition in history.

Sharing in the work on Anheuser-Busch InBev’s $104 billion takeover of Cape Town-born SABMiller Plc helped Deutsche Bank overcome what is shaping up to be the worst year for the industry in South Africa since Bloomberg began compiling records in 2004. 

“It was very positive to see this mega deal get done,” Simon Denny, managing director and investment banking head for the German lender’s Johannesburg-based unit, said in an interview. “Complex, large-scale mergers and acquisitions in South Africa have been scarce.”

Transactions in South Africa are grinding lower as the slowest economic expansion since the 2009 recession and political upheaval deters companies from following through on deals. Winning a role on the brewing deal is a bright spot for Frankfurt-based Deutsche Bank in the face of mounting litigation expenses tied to U.S. mortgage-backed securities.

Deutsche Bank tops South African M&A league tables when measured on completed deals in the five years through 2015, according to data compiled by Bloomberg. Although the AB InBev purchase doesn’t count on local league tables for 2016 -- where Deutsche Bank ranks second after Rothschild & Co. -- the Johannesburg unit would have shared fees for the proportion of work it did on the transaction.

‘Low Conversion’

“The themes that we have seen this year have included divestitures, private equity exits and real-estate listings,” Denny said. “While activity levels are high and deal makers are incredibly busy, overall M&A volumes and conversion rates have been low.”

The value of M&A transactions announced in South Africa in 2016 plunged to $7.7 billion from $23.6 billion last year, while the number of deals declined to 189 from 282, which was the highest since at least 2004. The decline contrasts with a resurgence in the United Arab Emirates, where the value of deals jumped to $15 billion from $4.8 billion in 2015, although the number of transactions slipped to 40 from 65.

With the rand the world’s most volatile currency, South Africa’s growth waning and increasingly stringent global regulations, companies including Barclays Plc and Old Mutual Plc are withdrawing from the country as part of a broader retreat from emerging markets. In the private-equity sphere, buyout companies that made acquisitions between 2007 and 2010 are ready to exit after a rally in stock markets since, boosting valuations.

Inbound acquisitions, where foreign companies buy into South African businesses, are likely to remain subdued next year because of uncertain local and global markets, a dimmer view of the prospects for developing nations such as Brazil, Turkey, Russia and South Africa, and faster economic growth in the U.S., according to Denny.

“Mergers and acquisitions in 2017 might include more South African retail and industrial companies as well as the country’s largest real estate investment trusts expanding abroad,” Denny said. “I don’t see IPOs coming back in a significant way in the current low growth, volatile environment.”

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