The markets have been awfully tricky to traverse in 2016, but jittery investment sentiment did nothing to stanch deal flows during the year.
Aside from the "gorilla deal" of SABMiller being acquired by Anheuser-Busch InBev, there were a good number of other smaller, but significant, transactions that would have kept corporate advisory fees ticking over nicely. These included Mediclinic International’s reverse takeover of Al Noor Hospital Group, a property deal between gaming and hotel group Tsogo Sun and Hospitality, the Blue Label Telecoms tilt at a major stake in Cell C, HCI’s sale of KWV’s operating assets to Vasari, empowerment group Brimstone’s topping up of its shareholding in Sea Harvest (which in turn took on strong Australian flavours), enX’s buyout of Eqstra, health-care conglomerate Ascendis’s clinching of two sizeable offshore acquisitions, Stellar Capital Partners’ purchase of Prescient and the securing by Amecor and Country Bird Holdings of a negative control block in rival Sovereign Foods.
In terms of new listing activity, health-care retailer Dis-Chem was the headline-grabbing event along with a number of small floats such as Gold Brands Investments and GoLife as well as another batch of property listings such as Liberty Two Degrees, Spear Reit, Global Trade Centre, Echo Polska Properties, Greenbay, Hammersons and Liberty.
It looks as if 2017 could be another year of hustling and bustling on the deal-making front with acquisitive counters like Ascendis, enX Group, Consolidated Infrastructure Group and Rhodes Food Group likely to continue buying selected assets.
Investment giant Remgro is also widely expected to buy the old SABMiller stake in Distell. This will give Remgro outright control at Distell, and — unless other institutional shareholders are brought into the corporate cocktail — the opportunity to delist Distell from the JSE after making an offer to minority shareholders.
In terms of less obvious deal-making opportunities, the Financial Mail has its own ideas about possible corporate events that might unfold in 2017.
Here are a dozen transactions we’d like to see transpire next year.
Switched on: The decision by Hosken Consolidated Investments (HCI) to list e-Media — the owners of e.tv, OpenView and 24-hour news channel eNCA — separately has hardly been riveting viewing for investors. The shares not only trade sporadically, but there is a disturbing differential in the price between the ordinary and low-voting N-shares. While e.tv and eNCA are strong cash-generating brands, there remains some doubt as to whether free satellite bouquet OpenView will offer content that is compelling enough to build critical mass. Older investors will know not to doubt HCI’s brains trust, and perhaps wily CEO Johnny Copelyn should be looking to diversifying e-Media with other cash-pumping operating assets. e-Media should look to buying control of radio broadcasting group African Media Entertainment from a consortium led by media magnate Terry Moolman. In terms of operational diversity, such a deal could suit both parties — though establishing the true value of the respective businesses might be a deal-breaker.
A richer seam: HCI — like fellow investment giant PSG — seems to prefer to have its main subsidiaries, once there is critical mass and operational traction, listed on the JSE. One of HCI’s more promising unlisted segments is its coal mining interests, which reported encouraging profit numbers in a recent interim report. These coal mining assets are probably still too small to attract much market interest, and the chances of HCI, which has bigger fish to fry in the gaming and media sectors, locating suitable bolt-on acquisitions seems remote. So why not offer these assets to promising junior coal miner and merchant Wescoal — which is hardly the most expensive share on the JSE’s resources sector — in exchange for scrip? Such a deal would enhance Wescoal’s already impressive empowerment credentials, and add another dimension to its mining segment.
Gem of a deal: With unloved diamond group Trans Hex now under the influence of serial risk taker Christo Wiese and deep-value investor Piet Viljoen, there should be an opportunity to polish up prospects with some smart deal-making. Could there be plans to nudge Trans Hex — which also has a majority stake in former De Beers assets held under West Coast Resources — close to resource conglomerate Pallinghurst, where Wiese holds considerable sway? Aside from its platinum mining interests, Pallinghurst holds a promising gemstone business and luxury brand Fabergé. High-quality diamonds could add considerable sparkle to Pallinghurst, which — like Trans Hex — trades at a substantial discount to net asset value.
Wasted opportunity: There can be no doubt that Stellar Capital Partners — which has deal-making fox Wiese as an anchor shareholder — will do several deals in 2017. Though there have already been three deals in fairly quick succession (Cadiz, Prescient and Amecor), the company certainly still has scope for more corporate manoeuvres. CEO Charles Petit surely has his eye on a number of possible targets, but the opportunity that stands out is to take a tilt at waste management business Interwaste. Interwaste has endured its fair share of hitches, but perhaps fresh input from a new strategic shareholder could ensure more convincing profit flows from a company that offers what most would regard as an essential (and increasingly in-demand) service.
Planting an idea: PSG-aligned agribusiness Zeder Investments has been inwardly focused for the past few years. New investment activity is long overdue, and with drought conditions having tested farming businesses it is surprising that Zeder has not found new and well-priced opportunities. One possible deal might be for Zeder to take a closer look at undervalued agri-business conglomerate Crookes Brothers, which has worked hard to diversify from its sugar-production core by moving into deciduous fruit, bananas and macadamia nuts. In terms of size this would be an easy deal for Zeder, which owns fruit marketing giant Capespan, to swallow. But the two very different corporate cultures could be a stumbling block to such a deal.
Fleet-footed: Could there be a tie-up between vehicle tracking and fleet management specialists Cartrack and Mix Telematics? Globally there has been consolidation in the fleet management sector, and Cartrack and Mix will certainly offer a compelling geographical spread, globally speaking, as a merged entity. The opportunity to build even more formidable margins by rationalising research & development, marketing and the services offering could appeal to both sets of shareholders.
Enter the twilight zone: There were some alarming write-offs at Distribution & Warehousing Network in the latest set of results. Some shareholders might be a little worried that the turnaround — being led by the more than capable Stephen Connelly (ex Hudaco) — could be a prolonged and painful affair. Whether the sight of so much blood on the financial statements and the battered share price means predators start circling remains to be seen. There are murmurings of a rights issue, but it’s probably not prudent to discount the possibility of fearless investment companies like Steinhoff International or Bidvest advancing with intent.
Constant cravings: Plans by Grand Parade Investments (GPI) — which holds the local franchises for Burger King and Dunkin’ Donuts — to increase its stake in Spur Corp significantly were scuttled by shareholders who might have been miffed at the premium price offer. No doubt GPI will continue to crave a bigger holding in Spur, but this may require some patience. Meanwhile, one wonders whether GPI might not have an appetite for Taste Holdings, which holds the Starbucks and Domino’s franchises (among other smaller eatery brands) in SA. A food entity with four major global fast food brands in its portfolio may well find favour with the market.
Food for thought: The JSE’s food sector — despite a brief bout of indigestion when the effects of the prolonged drought were being morbidly mulled — looks like finding a sweet spot with investors again. That said, RCL Foods — which still has a large exposure to the poultry sector — lags its countermates like Pioneer Foods, AVI and Tiger Brands. Perhaps it’s time that RCL’s parent company Remgro, fresh from a huge capital raising exercise, talks to fellow investment counter Brait about its controlling shareholding in Premier Foods? Yes, there may be a few overlapping segments that the competition authorities might frown upon, but there’s certainly enough to work with in terms of building a formidable food brands business.
Talking turkey: It’s no secret that industrial supplies conglomerate Invicta Holdings is looking actively for offshore assets to complement its slightly disappointing investment in Kian Ann in the Far East. But what if Invicta looked for a deal closer to home, and got the offshore exposure it desired? Automotive components specialist Metair is a superbly managed business with market-leading local brands, but also significant international exposure in Turkey and Russia. Metair’s valuation — considering its profit history — is rather attractive too.
Drink it in: Bowler Metcalf has needed to dig deep to maintain acceptable levels of profitability at its core plastics packaging operations. The no-fills business has a commendable track record over the past 30 years, but perhaps it is time for a change in a fickle consumer products market where competition among packagers has increased markedly in recent years. First Bowcalf would need to unbundle or offload its significant stake in soft-drinks bottler SoftBev. (Could Pioneer’s Ceres Beverages or Vasari’s KWV be a buyer?) With the focus exclusively on reinforcing a thick margin in the plastics packaging operations, there may be a chance to cosy up to Transpaco with a view to building an enlarged niche packaging hub. Transpaco holds a similar no-frills corporate culture to Bowler Metcalf, and the respective shareholder bodies might not be averse to backing a return-enhancing merger proposal.
Deal aggregator: Aggregates and mining specialist Afrimat has a lot on its plate, recently taking over Cape Lime and a sizeable sprawl of iron ore operations. Further deal-making — knowing the risk-averse nature of CEO Andries van Heerden — seems, at this point, unlikely. But observing the pain being felt at cement makers PPC and Sephaku, one wonders whether certain noncore assets at these two businesses might not appeal to Afrimat’s value pitch and longer-term strategic direction.
* The writer holds shares in Wescoal and GPI