Keeping up with the shrinking JSE and the Kardashians

13 September 2022

In 2021, the total value of companies being bought out globally passed the $1 trillion mark for the first time in history after a hiatus in 2020 due to the Covid-19 crisis. This dwarfed the previous record of $800 billion in buyout deals just more than a year before the global financial crisis in 2007. With interest rates at record lows in the developed world, it is no surprise that most of these transactions happened in North America and Europe. The technology sector was dominant, accounting for over a third of all buyouts. One of the largest transactions last year was the $30 billion buyout of United States (US) medical equipment supplier Medline by a private equity consortium. With the world still swimming in liquidity following massive quantitative easing by global central banks, funding for such deals remained relatively easy. A more eye-popping number is that global private equity firms had $3.4 trillion on unspent capital - a record surpassed this year so far. No wonder we even have celebrities getting in on the action with Serena Williams and Kim Kardashian launching their own private equity ventures.

This brings us to the issue of the dwindling number of companies listed on the Johannesburg Stock Exchange (JSE). A decade ago, approximately 400 companies were listed, and this number has fallen to about 330 at the beginning of the year. We have already seen several de-listings this year but what has captured the imagination of the public have been some well-publicised corporate battles involving some high profile JSE listed behemoths. At the tail end of last year, Northam made an unsolicited bid for RB Platinum, only for the board to support a share and cash offer by Implats, valuing the company at just over R43 billion. With Implats owning some 39% of the company and Northam having claims to 38%, it will come down to whomever the Public Investment Corporation decides to sell its stake to in the end. Another corporate battle looking to unfold this year will be the potential takeover of Telkom with MTN and a private company, Rain, slugging it out for control of the local partially state-owned giant.

The private equity fever has gripped the JSE in a slightly different guise this year. Remgro, the investment holding company established in the 1940s, had a portfolio 20 years ago dominated by British American Tobacco. The latest disclosed net asset value for Remgro now has Mediclinic as its largest investment.  Remgro is now leading a consortium bidding to take over Mediclinic, offering a 35% premium on the pre-offer price.  Mediclinic is a global hospital group that has expanded its footprint in the Middle East, Switzerland and the United Kingdom. Perhaps more surprising is that Remgro managed to enlist MSC, the global shipping company as part of its consortium. Another investment holding company, PSG, has decided on a different route by unbundling its listed holdings and going private. In this case, the company made the rational decision to unlock value by collapsing the group holding structure.

It is indeed becoming a trend to see global companies sniffing around our bourses for potential acquisition targets. I recall Warren Buffet being quizzed during my only ever visit to Omaha as to whether he would be interested in buying a South African company and him picking out Massmart. Of course, Buffett was a large investor in Walmart and Massmart was on the radar of the US retail giant in 2010 when they tried to make a bid for the whole group. More recently, Walmart made an offer to grab the shares it didn’t control after the local retailer fell on hard times. Ironically, Buffet has since exited Walmart, which has seen its home market share decimated by Amazon. Another Fortune 500 behemoth, Prudential Financial, acquired earlier this year a 15% stake in Alexander Forbes to further bolster its African footprint. The group itself was bought out by a private equity consortium in 2006, only to come back to the JSE in 2014. We may well see history repeating itself soon.

The reasons for a company exiting our local bourses are often nuanced. Some of the companies have struggled to survive in a moribund economy and have either closed their doors or shrunk to such an extent that they have preferred to move out of the public eye. Others, however, are seen as prized assets with solid growth potential, which have attracted both local and offshore corporate buyers. It may become harder to “keep up with the Kardashians” if the treasure trove of private equity currency comes looking on our shores. As investors in many of the above stocks, we also bemoan the fact that our investment universe is shrinking, but as long as buyers are willing to pay a fair price for these assets and invest in the growth of these businesses, all may not be lost for SA Inc after all.