FOREIGN direct investment (FDI) in SA rose 400% last year

Ernst & Young director for transaction advisory services Dave Thayser said inward FDI jumped from R18bn in 2006 to R82bn last year.

Bain Capital’s acquisition of Edcon for R25bn and the R37,6bn investment by Industrial and Commercial Bank of China in Standard Bank, were the two biggest deals of the year.

Thayser said FDI was a key driver of merger and acquisition (M&A) activity last year. The top 10 deals raked in R201bn, up 51% on 2006.

Sean McPhee, also a director for transaction advisory services at Ernst & Young, said foreign investors seeking additional yields were turning to emerging markets, which generally offered higher growth.

“We are encountering more and more foreign private equity groups that find the South African market attractive. This stems from the growth our market is experiencing, access to resource-rich Africa and the opportunities in infrastructure development.

“We believe private equity will remain a significant driver of M&A in the future,” he said.

Thayser said that South African companies should also look to expand abroad, in countries such as Brazil, India and Russia, as growth stalled.

“SA has been too inward-focused when it needs to be reaching out,” Thayser told Bloomberg.

Black empowerment had also “played a significant role in breaking up traditional corporate formations and ensuring a dynamic M&A deal-flow in 2007,” head of black economic empowerment at Ernst & Young, Sugan Palanee, said.

“The cement industry saw one of the biggest empowerment transactions whereby a substantial stake in Holcim was sold to the Afrisam consortium for R7,6bn,” Palanee said.

Business Monitor International’s (BMI’s) infrastructure report said the construction industry had shown “impressive growth in the last few years and holds immense scope for expansion”.

Thayser said the 2010 Soccer World Cup was expected to provide a tremendous boost to infrastructure development in the country. “BMI expects the industry to grow at 6,14% during the period 2008- 12,” he said.

There was increased investor interest in the mining sector with the launch of a $1,3bn private equity fund by Pamodzi Investment Holdings, which would focus on high-return investment opportunities in resource and resource-related sectors, primarily in Sub-Saharan Africa, he said.

Last year also saw a rise in shareholder activism “due to an increase in the volume of the verbal interplay”.

“Three deals last year really cemented the extraordinary power of institutional shareholders in SA and their increasing propensity to use this influence.”

The deals were the bid by Steinhoff for furniture retailer JD Group, the bid for Rainbow by conglomerate Remgro and Brait’s private equity bid for Shoprite.