M&A growth in Africa revealed by GBSH Consult

Oct. 4, 2013 - PRLog -- New figures* published today by international management firm GBSH Consult reveal just how significant Africa has become as an investment destination for global businesses seeking M&A opportunities.

In sharp contrast to depressed M&A markets globally, the findings underpin why many in the market are expecting the next decade to belong to Africa:

The value of African inward investment has tripled in the last ten years (up 214% in 2012 on 2003) reaching more than $182bn while deal volumes have doubled (up 109%), now standing at a total of 2,417.

Deal expenditure by non-African buyers increased by 71% in 2012 compared to 2011 despite a decline in global deal spend of 7% over the same period.

The UK has led the foreign investor charge, investing the most since 2003, and doubling its spending in Africa (by 133%) in 2012 compared to 2011.

Last year, international investors were responsible for half of the total value of African M&A, completing 255 deals worth $20.0bn out of a total of $39.5bn and 758 deals. This is up from $6.4bn and 122 deals in 2003.

Consumer-facing industries are beginning to rival natural resources as the prime sector hot spot for foreign investors, with M&A spend doubling to $3.8bn and 71 deals in 2012 (up from $1.9bn and 33 deals in 2003).

Most acquisitive nations

Over the last ten years, the UK, France and China have invested the most in Africa. The UK leads with 437 deals totalling $30.5bn, followed by France (141 deals totalling $30.5bn including the $15.0bn acquisition of Egypt’s OCI Cement by Lafarge) and China (49 deals worth $20.8bn).

Last year, the UK poured $4.5bn into African assets, just shy of its five-year high of $5.3bn in 2008. The UK’s largest acquisitions targeted South Africa. Examples include GlaxoSmithKline’s acquisition of South African Union Chimique Belge’s pharma portfolio. Elsewhere in the continent, British oil producer Tullow Oil acquired E.O. Group’s stake in West Cape Three Points licence in offshore Ghana.

Managing the risks

GBSH Consult’ s M&A corporate partner Sei Lebohang says, ‘The legal and cultural overlaps that the UK shares with many African countries, including the various Commonwealth states, make it an obvious investment partner in many jurisdictions. However, there remain several significant risks when investing in parts of Africa.’

‘For instance, Nigeria’s Bonny Island accounts for the most substantial fines issued by the US Department of Justice. Putting in place effective anti-bribery and corruption protections will therefore be crucial in many jurisdictions and sectors. Political volatility in several jurisdictions makes effective treaty protection for investors an essential risk mitigation tool.’

‘Currency and exchange controls can also block repatriation of funds, requiring sophisticated structuring techniques. Even as certain jurisdictions become more sophisticated (such as the new merger control regime for the Common Market of Eastern and Southern African (COMESA)) this creates new challenges.’

Sei adds, ‘Each country has its own opportunities, but also its own risks. A well-advised investor can address these risks, but doing so in an effective way generally requires a longer lead time than in more developed markets.’

Sector hot spots

Foreign investors, including the UK, particularly targeted the metals and mining and oil and gas industries with 752 deals totalling $33.9bn in metals and mining and 299 deals totalling $29.6bn in oil and gas. Collectively, $87.6bn across 1,190 deals has been invested in natural resources over the last ten years.

Consumer-facing industries such as telecoms, retail and food and drink are beginning to rival natural resources with $58.0bn invested across 569 deals. The value of investment targeting these industries has doubled in the last ten years with $3.8bn across 71 deals invested in 2012 (up from $1.9bn and 33 deals in 2003). Healthcare has also boomed, with investment in 2012 at a decade-high. Foreign investors spent $0.7bn across 12 deals last year, having ignored the sector in 2003 and invested just $11.6m, across four deals, in 2004.

Sei comments, ‘Extractives and mining opportunities have been big drivers of growth. However, consumer-related M&A could take the limelight as GDP per household continues to grow, the middle class in Africa expands and consumer demand rises.’

Most targeted African countries

South Africa, Egypt and Nigeria were the most appealing destinations for foreign investors. South Africa attracted $59.1bn of investment over 836 deals, followed, both in value and volume, by Egypt, which received $46.5bn for 266 deals. Unsurprisingly, there was a significant downturn in investment in Egypt during the instability of 2011 when international investors completed 34 deals worth just $0.29bn. Nigeria attracted an investment of $22.1bn across 90 deals.

African economies are also driving M&A activity, with South Africa proving the most active African investor in the continent outside of its domestic market (investing $6.2bn across 153 deals).

Visit http://www.gbshconsult.com for more details