Africa remains an exciting option for investors with its immense opportunities and growth, which continue to inspire confidence and, over time, to drive global growth. Positivity abounds for mergers and acquisions (M&A) for 2014 and onwards and the general consensus is that the most active areas for deals will continue to be the energy, mining and utilities sector, which according to Mergermarket’s report on Africa and the Middle East, enjoyed 7 out of the 10 largest deals, in both value and volume, in 2013. The consumer sector followed next and, thereafter, with the increasing need to develop new technological solutions, the media, technology and telecommunications sector.
Much attention has been put on Africa’s consumer sector with its increasingly active expansion. Global consumer brands are targeting brand-hungry consumers while at the same time enjoying the expanding consumer market, as the middle class continues to grow in spending size. This does not apply to only foreign companies but local companies too, as they grow their businesses regionally. This means that the consumer sector is expected to be one of the busiest in the year ahead and well worth watching.
While the rest of the world continues to experience relatively flat M&A activity, Africa’s rate of growth continues to attract investor interest even with the lack of transparency often found, the disturbing corruption, and the uncertainty that political risks on the continent can create. However, while the political environment is certainly not to be ignored, Sub-Saharan Africa has never been as politically stable as it is now and with its improved fiscal, regulatory and financial conditions, investor confidence is at an all time high.
All these positives mean that private equity firms are showing increased interest in the continent. They are in search of opportunities in emerging markets and where better to currently look than Africa. It is expected that in 2014 private equity activity will be an even blend of international and domestic companies.
Of course these days one cannot mention Africa without mentioning China and Chinese interest is expected to be a key factor in driving M&A. Many of these will be in the energy, mining and utilities sectors given China’s need to satisfy the huge demands it has on its raw materials industries. This applies to India too.
In addition, Chinese companies are obtaining their own facilities on the continent by purchasing African companies to meet the high volume demands required to fulfill sales in Africa, where Chinese products are very popular. However, it is not entirely accurate to say that China is the only driving factor of growth in Africa as African investors also play a key role.
When considering the main hurdles M&A faces over the year ahead, economic stability is undoubtedly a key factor with investors looking for stability so as to minimise risk. Due diligence is often restricted by the lack of facilities available and with transparency being key to successful due diligence, it is a concern where these are lacking. Having reliable data is essential for investors before making decisions. As mentioned, political uncertainty and corruption are also a concern and deterrent and these negatives play a frequent factor in the breakdown when it comes to the closing of deals. Generally, foreign investors enjoy returns that are high, with attractive prices and many are taking advantage of the low interest rates, valuations and minimal regulatory hurdles that Africa offers, to invest in a continent where their profits and shareholder value are maximised. It is evident that while the rest of the world is slow-moving in their M&A progress, Africa inspires confidence and an exciting opportunity for those seeking investment in a somewhat unique continent, and is expected to continue to do so well after 2014.