BEE still booming
While listed companies and their empowerment partners are suffering with share prices plummeting to levels below their issue price, empowerment deals are going ahead in the middle market with sizeable private companies.
Dave Thayser, director for Ernst & Young Transaction Advisory Services, said businesses in this market could structure deals easier and in a way that created mutual benefit for companies and empowerment partners.
BEE remained a significant deal driver in the world of mergers and acquisitions last year but going forward this activity is likely to be characterised by caution with corporate rescue appearing as a new deal driver.
Thayser said BEE was the type of deal that was most at risk as credit conditions weakened and free cash dried up.
Last year's largest empowerment deal was at Vodacom. "It was still unlisted at that stage. It will be interesting to see in the course of listing at what price they will come onto the market and whether it will be in the money."
Private company Richards Bay Minerals was the next biggest in terms of value, followed by PPC and Barloworld.
Thayser said from a BEE shareholder perspective this would be a great year for buying because share prices are low. Companies would never normally issue shares at this level because it dilutes shareholder value to too great an extent.
"There will be a disinclination on the part of management to do deals this year but they may find themselves between a rock and a hard place," he said.
Certain sectors have targets to reach such as mining companies needing to meet targets by 2014 in terms of the Mining Charter.
As for listed entities that have done empowerment deals at a premium, Thayser said these would either need to be repriced or refinanced. "Without growth in the underlying share price of companies this whole movement is going nowhere.
"It will be a tough year for BEE. There's a certain amount of cynicism about the number of BEE deals that are out of the money. It is still an important imperative but it will be difficult to finance deals in that area," he said.