South Africa, Nigeria and Kenya have been dubbed the most attractive target countries for Mergers and Acquisitions activity in Africa. This is according to the fourth edition of ‘’Deal Drivers Africa’,’ published by Mergermarket in collaboration with Control Risks, a leading business risk consultancy.
The trio- Africa’s top economies- have maintained investor interest with strong momentum in M&A across the majority of sectors as they have managed to turn challenges into opportunities by working to improve regulation and introduce greater transparency, both of which have threatened the deal makings according to findings of the Deal Drivers Survey.
Details of the report showed that 290 deals were recorded in 2015 alone, which is the highest volume since 2007. The report shows that South Africa (61%) emerged as the country that will be the most attractive to other African acquirers in 2016.
Nigeria (52%), which was deemed the most attractive market to other African buyers in 2015, is second followed by Kenya (46%) and Morocco (33%).
George Nicholls, Senior Managing Director for Southern Africa at Control Risks observed that “M&A activity in Africa is currently driven by many factors: Downturns in more established markets make international buyers look out for new targets; capital is more easily available and high-quality targets are offered at very attractive prices.
Despite all the enthusiasm over this positive development,
major obstacles remain. Regulatory, operational, security and increasingly cyber risks are major risks that should be considered when undertaking M&A activity on the continent.”
Nicholls explains further that “While most actors (88%) acknowledge the fact that external advisers are crucial to the success of a deal, still only 19% use external support for due diligence assessments.
Hence, many deals fail at the step of the very initial due diligence, as lack of transparency and local knowledge leads to lack of clarity in the ownership structures.”
This revelation points to the fact that the volume of M&A’s would have been significantly higher if investors had paid more attention to due diligence assessments in executing their quests for merger deals in Africa.
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 $3.2bn.
Deal activity was down 22 percent from 2014, which saw 32 deals worth $9.5bn.
So far, BusinessDay reports have identified 4 large mergers in the year 2016.
BusinessDay reports on M&A earlier this month had indicated mergers and acquisitions have taken a centre stage in Nigeria’s manufacturing sector.
According to analysts, the M&As, which took place in the food and beverages as well as foam/ furniture industries, portray that investors are seeing growing opportunities in the manufacturing retail sub-sector of Africa’s most populous nation, at a time the oil sector is in doldrums.
Notable M&As as reported by BusinessDay included BUA Group, one of Nigeria’s foods and infrastructure conglomerates, which announced the divestment of its flour business to Olam International in a deal worth $275million.
Also, Coca-Cola’s 40 percent investment in Nigeria’s Chi Limited was not unexpected in certain quarters. According to an authoritative source, the parent company of the Lagos-based Chi, Tropical General Investments (TGI) Group, had been considering the sale of the company for some time.
Although neither Coca-Cola, TGI nor Chi were willing to
disclose the financial terms of the 40 percent equity investment, it is speculated that Coca-Cola may have paid between $250 million and $400 million, though Chi was said to have valued the deal at about $1billion last year.
Similarly, The merger of Vita Foam and Vono Products is, perhaps, one piece of good news that has come out of the foam and furniture industries in recent times.
Lastly, GSK Consumer Nigeria plc has received a non-binding offer from Suntory Beverage & Food Limited as the latter plans to take over the former’s drinks business.
The findings of the Deal Drivers Africa report resonate with BusinessDay’s earlier postulations that investors are willing to tap into growing opportunities in Africa’s biggest economies to create bigger, stronger brands.
LOLADE AKINMURELE & CALEB OJEWALE
