BusinessDay
NigeriaDecides2023

Productivity constraints to drive acquisitions in Nigerian manufacturing – Experts

Economic experts have projected the possible increase in the number of mergers and acquisition of manufacturing firms in Nigeria as productivity glitches caused by rising energy cost, widening supply gap and global crisis intensify

A report on Mergers and acquisitions (M&A) in Nigeria by Deloitte, a multinational professional services provider defines the transaction as a form of business combinations that either result in formation of new companies or assimilation of existing businesses by others.

“M&AS are outcomes of some economic decisions as prevailing local economic situations create conditions for such transaction; In Nigeria, the devaluation of the Naira as a response to the economic crisis arising from the crash in crude oil prices among other issues may have unwittingly set the stage for another wave in M&A transactions,” it stated.

Frank Onyebu, chairman, Manufacturers Association of Nigeria (MAN), Apapa branch said, the resilience of many manufacturers in Nigeria especially those under the Small and Medium scale may begin to wear out as previous challenges intensify while new ones spring up before the first half of the year comes to an end.

A lot of manufacturers are struggling with increasing debt, rising production cost and low product demand forcing some of them to shut down temporarily or permanently, subsequently there might be attempts of business to merge with other businesses that have harmonizing strengths in order to carry on,” he explained.

Onyebu revealed that within the last two years, no less than 10 percent of manufacturing firms in the Amuwo-Odofin axis have shut down operations while many more are reducing production activity.

Read also: BUA, others push manufacturing output to N7tn

“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 that manufacturer’s profitability and productivity are already pressured without an avenue for outlet as consumer’s purchasing power and preference for affordability will not permit an increase in prices.

In the last six to twelve months, manufacturing companies have been acquired by companies with stronger fundamentals as macroeconomic conditions, production challenges, etc. takes a toll on their businesses, among other reasons which includes expansion activities.

For example Flour Mills of Nigeria Plc. (FMN) commenced a 71.69 percent stake acquisition of Honeywell Group Limited (HGL) worth N80 billion in November 2021 which has been approved by regulatory agencies.

Similarly, Moroccan mattress maker Dolidol, backed by African private equity firm Development Partners International (DPI) signed a deal to acquire Mouka, a Nigerian manufacturer of mattresses and pillows for $60 million.

In April 2022, Suntory Beverage & Food Asia Pacific (SBFAP) announced that it agreed to sell its Nigerian subsidiary – Suntory Beverage & Food Nigeria (SBFN), to Africa FMCG Distribution Ltd (AFDL) in a transaction said to be worth about $14million is expected to be completed in the second quarter of 2022.

Muda Yusuf, Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE) said already the outlook for manufacturing performance is not very bright due to numerous challenges especially the high energy cost which has had intense impact on businesses with diesel cost surging by almost 92 percent while the supply gap has widened due to the limited access to market since the Russia-Ukraine crisis started.

He added that the impact of this will be more profound on the Small and medium scale enterprises (SMEs), who are much more susceptible to shocks than larger companies.

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