Zim experiences surge in company mergers

Dumisani Nsingo, Senior Business Reporter
THIS year the Competition and Tariff Commission (CTC) managed to approve the highest number of mergers since the dollarisation of the country’s economy in 2009 amid indications that more local companies are seeking foreign partners to strengthen their balance sheets.

The Commission approved 16 mergers this year an increase from last year’s nine with the lowest mergers of five having been endorsed in 2009, the same year the country started trading in multiple currencies.

“The Commission so far this year has received 23 merger notifications. Of these, 16 mergers have been approved and four more would be approved before year end. The remaining three would be concluded in early 2016,” said CTC chairman Mr Dumisani Sibanda.

Twelve out of the 23 notified mergers involved foreign companies where the foreign part either acquired a local firm or both would be foreign parties whose business activities has an effect in Zimbabwe.

“There is a trend that mergers are being dominated by foreign players. To local firms this is an obvious route as the country is very short of capital. To foreign firms mergers are perceived as less risky as Zimbabwe is viewed as a risky country to invest in.

It is therefore less risky for foreign firms to invest in an existing firm than to start a green field venture,” said Mr Sibanda.

He further said the increase in local firms merging with foreign ones was a testimony that foreigners preferred to work with a local firm that has demonstrated capacity to withstand challenges stating that this was less risky for a foreigner than going it alone in an uncertain environment.

“Companies are desperately in need of recapitalisation. Merging is a less expensive method of recapitalisation. There is evidence of firms managing business risk through acquisition.

“Firms are seeking synergies to reduce the risk associated with the dollarised economy. Firms are also merging as a way of strengthening their balance sheets so that they can compete regionally and internationally,” Mr Sibanda said.