MergerMarket’s Deal Drivers AfricaJuly 19, 2016 2:48 am
M&A Activity in Africa
After several years of steadily increasing M&A activity, it seems African deal making has crossed the Rubicon. The continent has firmly entrenched itself into the global marketplace, with both domestic and inbound dealmakers seizing on the opportunities on offer. There were 290 deals in 2015, the highest volume since 2007. This figure coincides with the highest number of private equity deals on Mergermarket record (60).
Respondents to the 4th edition of the Mergermarket survey anticipate M&A will continue to grow in 2016 – many cited cash reserves and easily available deal finance among the top drivers. Despite political turmoil in many countries, a prolonged downturn in the commodities cycle and related currency risk, Africa’s top economies have more than maintained investor interest with strong momentum in M&A across the majority of sectors. Distressed assets in the oil and gas sector could, in fact, generate more deals in the near term.
In the renewables sectors, private equity firms are already reaping the rewards of their investments. One such example is Norfund’s exit from hydro company TronderPower in Uganda, as Africa seeks to accomplish 300GW of renewable energy generation by 2030. Across the continent – by no means a homogenous M&A market – investors have increasingly cast an eye over regional blocs that offer greater opportunity for cross-border activity. Deals in 2015 involving the manufacture of tissues, mattresses, baby foods and bottled water hint at diversification away from an economy centred solely on natural resources and the continuing promise for growth in the consumer sector.
The key Sub-Saharan M&A destinations – South Africa, Kenya and Nigeria – have managed to turn challenges into opportunities by working to improve regulation and introduce greater transparency – both of which were among the principal obstacles to deal making, according to the survey. Alongside the continent’s established M&A markets, other emerging destinations such as Ethiopia, Mauritius and Madagascar are also coming to the attention of dealmakers. Be it in established markets or up-and-coming nations, strategic buyers and private equity investors alike are looking beyond the commodities and extractive industries and increasingly appreciating the favourable valuations and expansion opportunities in Africa.
The situation in Nigeria going into the year are proving postulations that investors are willing to tap into growing opportunities in one of Africa’s biggest economies to create bigger, stronger brands; true. Nigeria’s rich natural resources, large population and favourable demographics ensured that the country remains one of the busiest and most attractive M&A markets in Africa in 2015 despite currency volatility and a period of uncertainty leading up to the presidential election.
Nigeria, one of the largest and most active M&A markets in Africa in 2015, delivered a year of steady deal flow in 2015 with 25 deals worth US$3.2bn. Deal volume was down 22% from 2014, which saw 32 deals worth US$9.5bn. Investor confidence in the Nigerian M&A market was strengthened by the conclusion of a presidential election in March, which had been postponed in early February.
However, this coincided with a weakening oil price – oil accounts for approximately 70% of government revenue – and related currency volatility that resulted in the Naira dropping to more than N200 to the US dollar at official exchange rates.
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