Published On: Thu, Feb 25th, 2016

Nigeria, Two Others Remain Africa’s Most Attractive Deal Destination

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… 290 deals recorded in 2015 – the highest volume since 2007

By Idowu John Bakare – Despite political turmoil, a prolong downturn in the commodities cycle and related currency risk, Nigeria, South Africa and Kenya remain the most attractive target countries for Mergers and Acquisition (M/A) on the Africa continent, reports have said.

Nigeria's minister of finance

Nigeria’s minister of finance

The latest report revealed that energy, mining and utilities are expected to generate the most merger and acquisition activity, with most foreign buyers of African companies in 2016 to come from Europe, Asia Pacific and North America.

In a release issued yesterday in London and sent to News Investigators, the report observed that “despite political turmoil in many countries, a prolonged downturn in the commodities cycle and related currency risk, Africa’s top economies have maintained investor interest with strong momentum in M&A across the majority of sectors.

The report which is the fourth edition of “Deal Drivers Africa”, published by Mergermarket in collaboration with Control Risks, the leading business risk consultancy, further said that 100 percent of its research respondents “believed that cross-border deal making between African countries will continue to increase.”

It further observed that a total of 290 business deals were recorded in 2015, the highest volume since 2007.

Mergers and acquisitions (M&A) is a general term used to refer to the consolidation of companies. A merger is a combination of two companies to form a new company, while an acquisition is the purchase of one company by another in which no new company is formed.

According to the release, “After several years of steadily increasing M&A activity, African deal making has made the final step to firmly entrench itself into the global marketplace. Despite political turmoil in many countries, a prolonged downturn in the commodities cycle and related currency risk, Africa’s top economies have maintained investor interest with strong momentum in M&A across the majority of sectors. This is one of the key findings of the fourth edition of “Deal Drivers Africa”, published by Mergermarket in collaboration with Control Risks (www.ControlRisks.com), the leading business risk consultancy.

Key findings of the report indicates that “South Africa, Nigeria and Kenya are seen as the most attractive target countries for M & A activity on the continent.
• 100% of respondents believe that cross-border deal making between African countries will continue to increase
• Respondents expect most foreign buyers of African companies in 2016 to come from Europe (41%), Asia-Pacific (39%) and North America (16%)
• Energy, mining and utilities are expected to generate the most M&A activity in Africa (79%), with industrial & chemicals being viewed as the second busiest sector in the next 12 months (72%)
• Regulatory uncertainty, particularly compliance and integrity issues, are highlighted as the principal obstacle to M&A activity in Africa (86%), followed by operational and security risks (77%)
• Cyber security is given highest importance by 60% of respondents when doing an M&A deal in Africa

The report quoted George Nicholls, Senior Managing Director for Southern Africa at Control Risks, comments on the findings as saying that:

“M&A activity in Africa is currently driven by many factors: Downturns in more established markets make international buyers look out for new targets; capital is more easily available and high-quality targets are offered at very attractive prices. Despite all the enthusiasm over this positive development, major obstacles remain. Regulatory, operational, security and increasingly cyber risks are major risks that should be considered when undertaking M&A activity on the continent.

“While most actors (88%) acknowledge the fact that external advisers are crucial to the success of a deal, still only 19% use external support for due diligence assessments. Hence, many deals fail at the step of the very initial due diligence, as lack of transparency and local knowledge leads to lack of clarity in the ownership structures.

“Only 9% reach out for help on anti-bribery and corruption programmes. ignoring or underestimating these issues can not only lead to failure of a deal, but almost more importantly to serious reputational damage for the buyer,” it added.

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