African M&A Deals Triple Over Past Decade

African M&A Deals Triple Over Past Decade

According to a new report by international law firm Freshfields Bruckhaus Deringer, African inward investment has tripled in the last 10 years, reaching more than $182 billion. Deal volume has also doubled, now standing at 2,417.

Britain leads the way as top investor in Africa, with 437 deals worth $30.5 billion since 2003. Other prominent investors include France (141 deals worth $30.47 billion) and China (49 deals worth $20.8 billion).

Investors have become increasingly attracted to Africa as it has begun to demonstrate strong economic growth, a fast-growing middle class, greater political stability and improved government balance sheets.

The African Development Bank expects economic growth to hit 4.8 percent this year and 5.3 percent in 2014, led largely by West African commodity exporters such as Nigeria, Ghana and Ivory Coast. And according to a 2010 McKinsey & Co report, household expenditures in Africa are expected to grow by 63 percent by 2020, to $1.4 trillion.

Industries leading the charge

In the last decade metals and mining saw the most M&A activity, with 752 deals worth $33.9 billion, followed by oil and gas (299 deals worth $29.6 billion) and wireless (33 deals worth $25.4 billion).

Recent discoveries of oil and natural gas in East Africa, from major gas finds in Mozambique and Tanzania, to optimism over future exploration in Uganda and Kenya, suggest that the East African oil industry is attractive to investors and still relatively untapped.

Last November we wrote about the growing rush on Madagascar, a nation that has been sitting on some 20 billion barrels in oil reserves for quite some time, with Madagascar Oil (headquartered in Texas) holding the largest amount of onshore exploration and productions licenses in the country.

But it’s not just mining deals that are fueling Africa’s strong M&A activity. “Extractives and mining opportunities have been big drivers of growth,” explains Bruce Embley, corporate partner at Freshfields. “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.”

Prominent brands boost African consumer sector

There is increasing evidence of diversification in the region’s investment profile. In 2012, the consumer sector registered the second highest M&A activity levels, largely thanks to Wal-Mart’s 51% purchase of South African retailer Massmart, which was worth US$2.4 billion.

Then in April 2013, L’Oreal announced its acquisition of Kenyan health & beauty business Interconsumer Products Limited (ICP). With a turnover of around 15 million Euros in 2012, ICP is a significant player in the Kenyan beauty market. The acquisition highlights the strategic importance of Africa for L’Oreal, which is also focused on growing in Uganda, Tanzania, Rwanda, Burundi and Ethiopia.

Private equity investment dollars fuel growth

London-based private equity company Actis LLP also sees strategic growth opportunities in Africa. Since 2003, Actis has raised $1.4 billion in seven African funds. Proceeds of an initial $155 million real estate fund have already been invested in malls and office buildings in Ghana, Nigeria, Kenya, Botswana and Mauritius. In June 2013, the PE firm announced it would invest another $1.5 million in African commercial property, including shopping centers, office towers and industrial park projects over the next 5 years.

KPMG expects Africa’s M&A achievements over the last decade to continue into the future. “We expect M&A across all sectors throughout Africa from global companies looking to grow in Africa, private equity sector and African conglomerates looking to expand in the continent,” said Dapo Okubadejo, KPMG head of financial advisory services in Africa.

Sources: Freshfield Bruckhaus Deringer, L’Oreal, Economic Times, World Property Channel, Intellinews, CapitalFM