Software and computer services industry mergers and acquisitions last year were worth just R3 billion, a far cry from 2000 when the sector concluded deals worth a total R90.3 billion.
According to Ernst & Young`s 12th annual Mergers & Acquisitions book, launched in Sandton yesterday, the IT sector, once the clear leader in deal activity, now accounts for only about 1% of total deal value.
The value of deals in the sector last year was just a third of the R9.1 billion recorded in 2001.
"Sustained adverse market conditions in this industry have created an environment in which few deals can be structured, and also severely limited the ability of listed software and computer services firms to raise funds in the capital markets," the book says.
"Over the last five years many listed IT companies have delisted, either through management buyout, private equity transactions or acquisition."
2002 was one hell of a year, but not a year conducive to deal-making.
Dave Thayser, corporate finance partner, Ernst & Young
The book, edited by Ernst & Young corporate finance partner Dave Thayser, lists just two material transactions in the sector - the MB Technologies management buyout and subsequent delisting (R513 million) and the Bytes Technology Group`s R460 million acquisition of UK-based Plato Computer Services.
IT accounted for a minuscule part of the overall merger and acquisition activity last year. The total value of all deals across all sectors was R242.4 billion, 51.7% down on the previous year`s R502.4 billion - the highest total recorded yet.
Thayser says "2002 was one hell of a year, but not a year conducive to deal-making". SA followed the international trend as merger and acquisition deal values halved globally.
He says the year was marked by the IT industry remaining in a meltdown, the aftermath of 11 September and the Enron collapse.
Disillusionment with blockbuster deals like the previous year`s AOL/Time Warner transaction has also set in, with scepticism about whether big deals deliver shareholder value. In addition, there was the effect of the build-up to the war in Iraq.
Empowerment
The book says share buybacks continued to be a popular means of restructuring during the year and mentions among others the R2.1 billion restructuring deal at investment group Hosken Consolidated Investments. This included the disposal of its 5% stake in cellular network company Vodacom.
The telecoms sector also accounted for the largest empowerment deal of last year, with the R4.1 billion disposal by Transnet of its 18.7% holding in cellular network company MTN.
While overall the number of empowerment deals increased to 104 from 101 the previous year, the value of empowerment deals halved from R25.1 billion to R12.4 billion.
"The process of BEE (black economic empowerment) reached a crossroads in 2002," Thayser says. "The past focus on board representation and limited involvement was missing. 2003 will define a clearer path for BEE and those corporates that do not embrace a BEE strategy this year may find they have missed their opportunity to do so."
Thayser says this will be the year in which government introduces its definitive policy framework on empowerment, which will include definitions and the role that government will play in promoting BEE and providing a mechanism to monitor its implementation across state-owned enterprises.
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