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Mergers, acquisitions seen in manufacturing sector as hurdles persist

Some economic analysts are projecting the rise of mergers and acquisitions (M&A) in Nigeria’s manufacturing sector, especially among the small and medium enterprises as local manufacturers struggle to remain resilient in the face of increasing challenges.

“The manufacturing sector will witness mergers and acquisitions going forward in order to prevent a shutdown because the macroeconomic condition is not really favorable for businesses and consumers.,” Jide Bababtope, an economic analyst told BusinessDay.

He explained as consumers deal with declining purchasing power which affects demand and sales volume, product manufacturers have to contend with higher production cost and bleak revenue outlook on the back of weak economic output.

Babatope said that players manufacturers in Nigeria are already struggling, this is aggravated by unfavorable macroeconomic conditions, that will put pressure on firms’ financial and operational performance.

Damilola Adewale, a Lagos- based research analyst told BusinessDay that the manufacturing sector was facing possible close down on the back of operational challenges and production cost which affected its activities and may resort to mergers for sustainability.

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“Between the short term and medium term, the cost of doing business will be on the high side for manufacturing outfits as they have to contend with higher production cost even as their revenue outlook is bleak on the back of weak economic output,” Adewale said.

He added that the impact of this will be more profound on the Small and medium scale enterprises (SMEs), hence the trend of mergers will be on the rise as these companies come together to avoid closure.

The manufacturing sector in the second quarter of 2021 3.49 percent growth, which was also the highest Q2 figure across six years according to data from the National Bureau of Statistics (NBS). However, manufacturers say the figures did not reflect the reality in the sector.

Economic experts affirm that the sector had earlier suffered underlining challenges hindering its productivity. This was further aggravated by the outbreak of the Coronavirus pandemic. The inherent challenges, which seem to have gotten worse overtime ranging from the shortage of foreign exchange, cut in supply, increase in production cost and low product demand which have adversely affected their activities.

“A lot of manufacturers are struggling with so much debt and other challenges in the business environment, Some businesses have shut down permanently while some others have suspended operations for now,” Frank Onyebu, chairman, Manufacturers Association of Nigeria (MAN), Apapa branch said.

He added that there might also be attempts of business to merge with another business that has harmonizing strengths in order to carry on especially as cost of production has increased significantly in the face of inflation and scarcity of raw materials.

The trend of M&A is not new to Nigeria’s industrial space. In 2018, Dufil, owners of Indomie noodles, acquired 100 percent of the food production line of May & Baker Nigeria Plc, covering its noodles business under the brand name, Mimee Noodles. The deal was worth N775 million.

In 2019, Coca-Cola Company completed the acquisition of a 100 percent stake in Chi Limited, one of Nigeria’s foremost fruit juice and drinks manufacturers. Similarly Olam International Ltd. acquired 100 percent of Dangote Flour Mills with N120 billion.

Also in 2019, Ohara Pharmaceutical Co. Ltd, a leading Japanese healthcare company, increased its shares in Fidson Healthcare Plc to 21.57 percent with N700 million, one of Nigeria’s leading pharmaceutical manufacturers. In 2020, Friesland Campina purchased Nutricima’s dairy business in Nigeria at an undisclosed amount.

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