Cross-border deal making in Africa expected to rise in 2014

The recently released Deal Drivers Africa report, published by media company Mergermarket in collaboration with law firm ENSafrica and South African-based bank Nedbank Capital, indicated that African cross-border deal making will be on the rise in 2014.

The report’s research is based on interviews with 100 merger and acquisition (M&A) practitioners operating in Africa, including corporate executives, private equity investors, investment bankers and legal advisers.

Of those surveyed, 88% indicated that they expect cross-border deal making between companies in different African countries to increase in the next 12 months.

South Africa was identified by 89% of respondents as the African country that is expected to be the busiest cross-border acquirer over the next year.

“South Africa is the gateway to sub-Saharan Africa and is the region’s most developed economy,” said one director of a private equity firm in Togo. “South African outbound M&A is expected to rise as South African companies continue to pursue the continent’s rich natural resources and seek to diversify capital away from the domestic market.”

After South Africa, Nigeria and Ghana were expected to be the next most active cross-border acquirers over the next 12 months in Africa, followed by Kenya, Tanzania and Angola respectively.

Two reasons are offered for this expected increase in cross-border activity. First are the positive growth trends on the continent, and second is the relatively weak economic growth of global developed markets, that offer less attractive opportunities.

“The growth numbers in Africa are very good when compared with the rest of the world,” said the director of a private equity firm in Togo. “Developed world countries are generally flat or negative at the moment, while emerging markets in Africa offer more opportunity.”

However, the large majority of respondents (96%) indicated that they expect acquisitions in the continent from international bidders to rise in 2014.

Asia-Pacific was identified by 94% of respondents as one of the most active regions in terms of the source of in-bound buyers in M&A.

“China has a big interest in Africa, particularly its vast natural resources. But its interest is more complex than that,” according to a partner at a South African-based private equity firm. “Chinese companies increasingly see the African market as having great potential for increasing their sales and revenue. Chinese products are already a big hit in Africa and now Chinese companies are looking to set up their own plants and facilities in the region by acquiring African companies.”