South Africa’s mergers and acquisitions (M&A) activity in the technology sector remains flat amid rising inflation, increased cost of capital and geopolitical uncertainty.
This is according to investment analysts, who say M&A activity in the South African technology, media and communications (TMC) and the technology, media and telecommunications (TMT) sectors has seen fewer deals over the last few years.
The economy and its various sectors remain vulnerable due to muted growth prospects and geopolitical headwinds, they add.
Sihle Bulose, director of corporate and commercial at law firm CMS, says a significant portion of the venture capital TMC and TMT investments relate to early-stage investments. However, overall M&A investment activity in SA still lags global peers, with a limited number and size of deals in the South African market compared to pre-pandemic levels.
Fast-moving considerations
An M&A study conducted by CMS shows an evolving landscape, where dealmakers globally are adapting to shifting risk allocation strategies, emerging technologies and regulatory complexities.
“The past couple of years have remained relatively flat in respect of large M&A activity in South Africa’s TMC space, which is an improvement from the post-COVID-19 slump, but the activity has not recovered to its pre-COVID-19 levels. The market seems to be dominated by a few big-ticket transactions,” notes Bulose.
“Venture capital investors do not limit themselves to TMC businesses, but are also willing to invest in sectors offering above-average growth, such as agri-processing and healthcare. However, TMC businesses remain a primary source of high-growth returns, as a result of scalability and the continent's digital transformation demands.”
According to Bulose, M&As in Africa's tech industry are facing unprecedented challenges due to shifting geopolitical dynamics, which may lead to a regional or global recession, and could see foreign investors reprioritise their investment objectives and focus less on developing markets.
The African continent also requires a great deal of infrastructure development in order to enable technological innovation. If the cost of capital is increased due to global inflationary pressures, African governments may struggle to fund the required enabling infrastructure, according to Bulose.
“Local conflicts and political instability may also deter foreign and African institutional investors from pursuing investments on the continent.Foreign investors may also be forced to exit certain markets.”
Comparing M&A deals between large enterprises and those within the SME sector, he notes that with large enterprises, M&A activity is driven by a variety of factors, such as strategic advantages, funding, regulatory concessions, the need to achieve an exit for medium-term investors like private equity funds, and the general macro-economic environment.
“From a deal value perspective, large enterprises have much bigger cheque sizes because of the scale of their operations. From a deal volume or frequency perspective, there is a lot more deal activity in the start-up/SME space.
“The local venture capital scene has much less capital available to it when compared to other alternative asset classes, such as private equity. This means that the size of the transactions will be limited as investors diversify their risk, whilst being constrained by the limited funds they have at their disposal,” states Bulose.
According to PwC, global TMT deal volumes in 2024 were 27% below 2023 levels, but in early 2024 there was a recovery in deal values, particularly in the technology sector, with several larger deals being announced. With TMT being at the heart of the artificial intelligence boom, dealmakers started 2025 with greater optimism around M&A opportunities in TMT sectors, it says.
Peter Takaendesa, chief investment officer at Mergence Investment Managers, says despite a slowdown in deal-making as a result of headwinds − such as high interest rates, political uncertainty, slow economic reforms and economic growth running well below SA’s emerging market peers −M&A remains active in the broader TMT sector in SA.
“Despite these headwinds, we think investors still find our laws and deep capital markets relatively attractive. Consequently, SA is still seen as a gateway into the rest of Africa,” he comments.
“While there are still several small ongoing M&A transactions in the sector by domestic companies, the large transactions are mostly coming from international companies acquiring SA companies that are well-positioned at home, but also provide exposure to growth in the rest of Africa.
“It is quite likely that we will see even higher levels of M&A in the broader TMT sector if structural economic reforms in SA gain momentum that will lead to real GDP growth sustained above 2%, together with political stability.”
SA’s technology sector has seen several notable M&A deals over the last few years, including the acquisition of Takealot by Naspers, Japan's NTT acquiring Dimension Data, DPO acquiring PayFast, Vodacom acquiring IoT.nxt, 4Sight acquiring X4 Solutions and XFour Technology, and most recently, Groupe Canal+'s planned acquisition of MultiChoice Group.
Takaendesa believes these deals reflect both domestic and international interest in SA’s growing tech space.
“In the pure technology space, we expect interest to rise in businesses in the broader artificial intelligence and cyber security value chains.
“In the telecoms space, we expect interest in fibre assets and towers to remain high given that data traffic growth remains in double digits. Competition authorities remain concerned about market concentration in some TMT sectors, making it difficult for local companies already in the space to acquire their peers or large related businesses; for example, the Vodacom/Maziv and MTN/Telkom deals.”
According to CMS, SA’s telecommunications sector continues to be capital-intensive. The rollout of LTE and 5G networks, along with the proliferation of fibre-to-the-home services, has led to consolidation efforts in that sector. This trend is expected to continue as the local market matures.
The market has also seen a fair number of bolt-on acquisitions, in which investors acquire complementary businesses in order to achieve a level of vertical integration, or to acquire a new customer base.
Bulose adds: “Outside of venture capital, the most significant transactions are occurring in digital infrastructure, which has manifested in consolidation in SA’s telecommunications sector; international and local infrastructure investors investing in expanding SA’s data centre footprint in light of the increased need for cloud computing capacity on the African continent; and a continued move towards specialisation, as mobile network operators continue to externalise their telecommunications portfolios, which frees up their balance sheets.”
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