Welcome to the fourth edition of Deal Drivers Africa, published by Mergermarket, in collaboration with FBNQuest, Merrill Corporation and Control Risks. Based on interviews with 100 M&A practitioners operating in Africa, including corporate executives, private equity investors, legal advisers and investment bankers, this report provides valuable insights into the African M&A market from those who know it best.
After several years of steadily increasing M&A activity, it seems African dealmaking has crossed the Rubicon. The continent has firmly entrenched itself into the global marketplace, with both domestic and inbound dealmakers seizing on the opportunities on offer. There were 290 deals in 2015, the highest volume since 2007. This figure coincides with the highest number of private equity deals on Mergermarket record (60). And respondents in our survey anticipate M&A will continue to grow in 2016 – many cite cash reserves and easily available deal finance among the top drivers. Despite political turmoil in many countries, a prolonged downturn in the commodities cycle and related currency risk, Africa’s top economies have more than maintained investor interest with strong momentum in M&A across the majority of sectors. Even though oil-exporting countries in particular are having their resilience tested by the drop in oil price, the Sub-Saharan African GDP growth forecast remains solid at 4% year-on-year (YoY). Distressed assets in the oil and gas sector could, in fact, generate more deals in 2016. In the renewables sectors, private equity firms are already reaping the rewards of their investments. One such example is Norfund’s exit from hydro company TronderPower in Uganda, as Africa seeks to accomplish 300GW of renewable energy generation by 2030. Across the continent – by no means a homogenous M&A market – investors have increasingly cast an eye over regional blocs that offer greater opportunity for cross-border activity. Deals in 2015 involving the manufacture of tissues, mattresses, baby foods and bottled water hint at diversification away from an economy centred solely on natural resources and the continuing promise for growth in the consumer sector. The key Sub-Saharan M&A destinations – South Africa, Kenya and Nigeria – have managed to turn challenges into opportunities by working to improve regulation and introduce greater transparency – both of which were among the principal obstacles to dealmaking, according to our survey. Meanwhile, North Africa’s most established economy, Egypt, also experienced a spike in M&A – value and volume both doubled year on year in 2015. This indicates that stability may have finally returned to the market. In addition, new investors are coming to the fore in Africa – in part, due to China’s economy slowing. India’s Modi-led government held an Africa-India summit in October that garnered a great deal of attention and is expected to yield stronger business ties in the coming years, particularly in the energy and TMT sectors. Alongside the continent’s established M&A markets, other emerging destinations such as Ethiopia, Mauritius and Madagascar are also coming to the attention of dealmakers. Be it in established markets or up-and-coming nations, strategic buyers and private equity alike are looking beyond the commodities and extractive industries and increasingly appreciating the favourable valuations and expansion opportunities in Africa.