African M&A deal volume at a seven year high says Mergermarket

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A steady increase in African deal flow and interest from overseas investors since the financial crisis points to the increasing maturity of African countries as a destination for M&A. Total African deal volume was buoyant at 290 deals, up 1% from 2014, despite severe headwinds from a slowdown in the Chinese economy and currency woes in South Africa and Nigeria, the continent’s two largest M&A markets. Accordingly, deal value fell by 26% to US$27.3bn in 2015, mostly due to a smaller number of big-ticket transactions on the continent.

The mid-market was busiest, reports Mergermarket, as dealmakers focused on smaller investments. Indeed, 88% of transactions were valued up to $250m. By contrast, there were only five deals worth more than $500m, compared to 14 in 2014. Nevertheless, deal volume for 2015 was the highest on record since 2007, as both corporations and private equity firms – armed with large cash reserves and access to cheap finance – continued to close in on opportunities, despite the wider uncertainty of globally depressed commodity prices.

“The rise in inbound investment into Africa, which accounted for 70% of deal value in 2015, proves the attractiveness of the market. In particular, private equity (PE) firms, who were sitting on a war chest of some $1.3trn in 2015, saw the potential in the growth forecasts of African economies and concluded a record number of deals (118) over the past two years, amounting to more than $15bn,” says the data miner.
Interest was particularly evident in the consumer and financial services sectors with deals such as Norway-based Norfund AS and NorFinance buying a 12.22% stake in Kenyan bank Equity Group Holdings for $257m, and UK-based private equity firm Actis buying South Africa-based consumer retail businesses Fruit & Veg City Group and Coricraft Holdings.

The muted price of oil and continued depression in mining did not appear to dampen dealmaking enthusiasm in Africa’s natural resources sector, typically the biggest contributor to African M&A activity, says Mergermarket. The energy, mining and utilities segment accounted for more deals than any other sector, representing 24% of total deal value in 2014/15 and 17% of total deal volume.

Despite plummeting oil prices, local investors saw opportunities to buy assets from international oil majors’ divestments such as Angola’s national oil company Sonangol’s acquisition in US company Cobalt International Energy-owned blocks worth $1.8bn, and several acquisitions of Nigerian Oil Mining Licenses by local players Seplat Petroleum Development and Eroton E&P from Chevron and Shell.

Source: FTSE Global Markets