FEATURE
EAST AFRICA
The diversified East African M&A markets are becoming increasingly attractive in the face of declining commodity prices which weigh heavily across the continent. A strong culture of entrepreneurship and mature financial markets in the region mean it is catching up fast.
M&A activity in East Africa was stable in 2015, with 32 transactions – only marginally less than the 34 deals in 2014. Deal value also mirrored the previous year’s figures with US$1.14bn, 11% lower than the previous year. It is the year ahead, however, that has dealmakers excited about the region. In Mergermarket's survey, East Africa was ranked as the second most attractive region on the continent for inbound investment after southern Africa, up from fourth last year.
 
Strong economic growth in 2015 is the primary driver for the optimism. East Africa had a projected GDP growth forecast of 5.6% in 2015, compared to 4.6% for Sub-Saharan Africa as a whole, according to the African Development Bank. The forecast for 2016 points to expansion of GDP growth to 6.7% for East Africa. “East Africa is very attractive for investors. Economies in the region are developing rapidly. The region is also known for having a generation of young, well-educated, successful entrepreneurs,” says Stephanie Lhomme, Senior Managing Director, Europe and Africa, at Control Risks.“These are more open than previous generations to accepting outside capital in order to modernise their operations or expand beyond their home market." New horizons Unlike other regions (South Africa aside), where deal activity is dominated by energy, deal flow in East Africa was spread across a range of sectors. In 2015, the largest deals in the region included UK-based banking group Old Mutual’s US$156m acquisition of a 37.7% stake in Kenyan financial services company UAP Holdings; Swiss asset manager Quantum Global Alternative Investments’ acquisition of construction company Savannah Cement; and Indian-owned drug manufacturer Cipla’s purchase of a 51% stake in Ugandan pharmaceutical distributor Quality Chemicals for US$30m. “What draws investors to East Africa is the diversity of opportunities. You have a cluster of countries with similar growth stories but distinct markets. They offer investors everything from growth and impact investment to more established large targets, and that variety plays to the region’s strengths,” says Maria Knapp, Director, Europe and Africa at Control Risks.
 
Lhomme adds that “public-private partnerships (PPP) will rise as they will be critical to development in East Africa. However, they will require a regulatory framework that satisfies both the profit targets of investors and the broader mandate of governments. The first investors engaging in such PPPs will need to be diligent in their risks assessment and mitigation approach to be resilient to the challenges presented by such partnerships."