COMPANIES with strong balance sheets are expected to splash on Zimbabwean acquisitions in the current financial year for growth thanks to lower costs.
In emailed responses to businessdigest enquiries last week, Competition and Tariffs Commission director Ellen Ruparanganda forecast more mergers this year after handling a total of 20 mergers and acquisitions in 2018.
"The Commission expects more merger cases as firms focus on synergies potential while those companies with strong balance sheets are well-positioned for exercising growth options through acquisitions when the cost is lower," Ruparanganda said.
"The Commission expects to see more mergers in the manufacturing sector since most of the firms are still operating below capacity."
She also sees merger and acquisition activity in the insurance sector.
"The Insurance and Pensions Commission (Ipec) is targeting insurance penetration to reach 7% by 2022 compared to the current 4,7%, thus growth of the sector can witness more merger transactions as players try to develop products suitable for the current market trends. There is an element of growth in financial technology in Zimbabwe, therefore the ICT and finance sectors can also witness more merger cases," Ruparanganda said.
Companies with strong balance sheets and free cashflows have seen the prevailing economic situation in Zimbabwe as an opportunity to expand their markets as evidenced by local companies seeking partners who can inject working capital.
Mergers and acquisitions are being driven by the desire to leverage the strength of the two companies involved in order to develop innovative products. The firms also seek to consolidate their business activities in order to be able to compete in the domestic and regional markets.
Ruparanganda said 45% of the mergers handled last year involved Zimbabweans firms seeking to expand their businesses
"Forty-five percent of the mergers involved firms from the African region, with 35% of the firms coming from South Africa and 10% from Mauritius and Sierra Leone. The European region firms were involved in 10% of the mergers with firms coming from France and German," she said.
South African firms continue to dominate the local merger and acquisition scene and have been buying companies in Zimbabwe as they seek to grow their markets. Of these mergers, insurance and healthcare sectors attracted the highest volume of merger activity with 20% each followed by the manufacturing sector with 15%, Ruparanganda said.
Fast-moving consumer goods constituted about 10%, the petroleum sector had 10%, while industrial gases, transportation, mining, steel and motor spares had 5% each.
In the Nzou Holdings Ltd and Alliance Insurance merger, the latter will benefit from skills transfer and foreign direct investment inflows. Adcock Ingram Health merged with Genop Holdings. Adcock is a South African pharmaceutical company which manufacturs, markets and distributes a wide range of healthcare products.
A total 55% of the mergers and acquisitions transactions were approved without conditions, 10% were approved with conditions and 35% are still ongoing.
The Insurance and Pensions Commission (Ipec) is targeting insurance penetration to reach 7% by 2022 compared to the current 4,7%, thus growth of the sector can witness more merger transactions as players try to develop products suitable for the current market trends.