Locally and globally, mergers and acquisitions (M&AS) have been on the rise especially in the last decade. The Global Transactions Forecast (Forecast) issued by Baker Mckenzie revealed that in 2016, when the Nigerian economy experienced recession, M&ÂS in Nigeria was valued at $11.77 billion. In 2017, the deals declined by 59 percent to $4.82 billion. In 2018, it surged to $21.54 billion and dropped to $7.59 billion in 2019. The global law firm forecast that in 2020 and 2021, M& As would reach $6.29 billion and $14 billion respectively.
A report on Nigerian M&AS by Deloitte, a multinational professional services provider, said M&AS are outcomes of some economic decisions, as prevailing local economic situations create conditions for such transaction. It said the continued financial pressures exerted on local businesses appears to be making them attractive candidates for mergers, takeovers and acquisitions, by both foreign companies and other local brands with time-tested strong financial capital strength
In Nigeria, many companies in the manufacturing sector are struggling to stay afloat due to the recurrent challenges inherent in the business environment as well as the poor management of the economy. In a bid to survive these, companies merge with other companies and carry on with their activities, control market shares and achieve economies of scale.
Lanre Jaiyeola, managing director, Honeywell Flour Mills, told Businesssday in 2019 that Nigeria’s milling industry had witnessed a lot of consolidations, mergers and acquisitions, leaving just 6-7 active players in the industry.
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. Similarly, in 2017, Dufil acquired Dangote Noodles Limited, a
unit of Dangote Flour Mills, involving two of its production plants at its Ikorodu and Calabar factories, for N3.7billion.
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. In 2020, Friesland Campina purchased Nutricima’s dairy business in Nigeria.
A similar transaction had occurred when Ohara Pharmaceutical Co. Ltd, a leading Japanese healthcare company, increased its shares to 21.57 percent with N700 million in Fidson Healthcare Plc, one of Nigeria’s leading pharmaceutical manufacturers.
Mobola Adu, research analyst at GDL Nigeria, said the manufacturing sector was facing possible close down on the back of operational challenges and production cost which had affected its productivity.
“The manufacturing sector will witness mergers and acquisitions going forward in order to prevent a shutdown because the macroeconomic condition is not really favourable for their consumers. Therefore, affecting the volume of sales, in addition, they have to contend with higher production cost, bleak revenue outlook on the back of weak economic output,” Adu said.
However, Akinloye Ayorinde, consumer goods analyst at CSL Stockbrokers, said rather than M& As, players in the manufacturing sector would rather invest more in backward integration, especially for producers of consumer goods like sugar, cocoa beverage and industrial goods like cement.
“Many manufacturing companies will try to improve their productivity by investing more in backward integration to improve their operations and productivity, especially with foreign exchange challenges in the system. Except they decide to acquire another company that produces their raw materials, which are quite unlikely considering the macro economic situation,” he explained.
However, experts project that there would be more mergers and acquisition in the future due to economic recession that will put pressure on firms’ top-lines and bottom-lines. They expect to see more in the food and beverages sub-sector.
The Nigerian economy has slipped into a second recession in four years as COVID-19 pushed growth to the negative territory for the second quarter. This is expected to pressure firms, forcing them to consider mergers and acquisitions to stay afloat in the market, gain market share and achieve economies of scale in terms of cost and expansion, analysts say.