The recently released Deal Drivers Africa report highlighted trends to expect in mergers and acquisitions (M&A) in the continent in 2014. The report’s research is based on interviews with 100 M&A practitioners operating in Africa, including corporate executives, private equity investors, investment bankers and legal advisers.

The report was published by media company Mergermarket in collaboration with law firm ENSafrica and South African-based bank Nedbank Capital. Here is what to watch out for in M&A activity in 2014.

1. M&A activity on the rise

M&A activity is expected to increase in 2014. Investors will be attracted by the region’s high rate of growth, improved governance and huge wealth of still relatively untapped natural resources.

“Our region is among the fastest growing in the world. This growth is set to continue over the coming years. Considering the sluggish economic recovery in many developed countries, and that M&A activity is essentially procyclical, it is natural that multinational companies that want to expand their businesses through M&A are turning towards high-growth African economies,” said a finance director in Zimbabwe.

2. China’s influence

The growth of M&A activity will be driven by acquisitions by Chinese companies. Most deals will be in the energy, mining and utilities sector as China seeks to secure raw materials to satisfy the huge demands of its own industries. Three of the top 10 deals of 2013 involved Chinese companies. The biggest of these transactions, with a value of US$4.2bn, was China National Petroleum Corporation’s acquisition of a 28.57% stake in Eni East Africa Spa from Eni Spa.

Chinese companies also see the potential to sell their products to the African market, and are looking to set up their own plants in the region by acquiring African companies.

3. Energy is the lead sector

The energy sector accounts for the largest share in terms of both volume of deals and value this year. Nearly all respondents (95%) tipped energy mining and utilities to be among the busiest over the 12 months. A South African head of corporate development said the energy sector has gained tremendous value and foreign investors are flocking in to acquire energy support so they can gain access to the energy resources available.

“Oil, gas and mining assets in Africa are crucial for global companies in terms of securing reserves and ensuring continued production with high margins. Indeed, most deals in extractive industries will have foreign companies partnering with local companies,” said the director of a private equity firm in Togo.

4. The middle class effect

Africa’s burgeoning middle class is inspiring increased M&A activity in the consumer sector as local and global firms capitalise on rising demand. More than half of respondents said the consumer sector will be busiest in terms of M&A in 2014.

“The opportunity presented by Africa’s booming middle class is proving irresistible for global consumer companies, which are increasingly expanding their operations to target brand-hungry consumers. This trend is not limited to foreign companies with domestic consumer companies also growing their business regionally through M&A,” said one Angolan financial director.

5. Outbound activity to Europe

Amongst respondents who expect an increase in outbound M&A from Africa, some 24% take the view that Europe will be the principal destination. This was attributed to favourable valuations in Europe. A financial director in Zimbabwe said outbound M&A activity will be directed towards Europe to acquire technology and distressed assets.

“African companies want to go global and learn the practices of foreign companies so that they can become more competitive in the global market. Considering the distressed situation in Europe and superior technology and famous brands they have, African companies will first prefer European countries for outbound deals,” said a partner at a private equity firm in South Africa.

6. Cross-border acquisitions by African firms on the rise

African companies expanding in the region account for the largest share of M&A deal volumes and this is expected to rise in 2014. The portion of African acquirers has remained broadly steady since 2006, generally accounting for 50%-60% of total deal volume in each year.

“I think African companies are looking to expand regionally and grow their market share so that they can reduce the competition from foreign companies and prevent foreign companies from dominating their markets,” said one partner from a law firm in Nigeria.

“African companies have a lot of cash on their balance sheets, which gives them confidence and aids getting the approval of stakeholders.”

7. South Africa is lead acquirer

South Africa was identified as the region’s most active cross-border acquirer. Notably, South African outbound M&A is expected to rise as South African companies continue to pursue opportunities across the continent.

After South Africa, Nigeria and Ghana were expected to be the next most active cross-border acquirers over the next 12 months in Africa. A managing director in Tanzania attributed this to the two countries’ strong economic growth.

8. Private equity exits on the rise

More than half of respondents expect a spike in private equity exits to increase over the coming 12 months due to the attractiveness of other emerging markets. Despite this, the vast majority of respondents expect an increase in private equity activity over the coming year.

“Price reductions in other emerging markets have given rise to exits in Africa. Valuations in Africa are rising as the demand for African operations increase, leading investors to look for new markets to invest where the valuations are lower and the return on investment is greater,” explained a finance director in Algeria.