The M&A sub sector on the African continent has been dominated by Britain (437 deals worth USD 30.5 billion), France (141 deals worth USD 30.47 billion) and now China (49 deals worth USD 20.8 billion) over the past decade. Most recently, Kenyan and South African firms have been at the forefront of the deals within East Africa one of Africa’s fastest growing blocs.
The growing trajectory of M&A deals in the region is not expected to wane and will be driven by the oil and gas sector, the telecoms and ICT as well as the FMCGs such as pharmaceuticals and retail, especially as the middle class continues to grow.
The deals and prospects in the Kenyan oil sector are hinged on the confirmation by Tullow Oil that the country’s oil reserves are commercially viable. More activity is expected as the larger players make their move on the well positioned smaller companies. Tanzania’s prospects look brighter at the moment, given trends in Mozambique’s part of the Ruvuma basin. Not only have the two deals involving Eni East Africa Spa and Rovuma Offshore Area 1 Block in northern Mozambique been the top two deals on the continent in H1 2013, but they have also accounted for 49.2 per cent of the total M&A deal value. As a result, we can expect more activity in Tanzania, which shares the Ruvuma with Mozambique.
Uganda too could have more than 3.5 billion barrels of oil since less than half of the basin has been explored. The basin has a success rate of 88.4 per cent which is a lot higher than the global rate, which is between 10.0 and 30.0 per cent making it an attractive proposition to more investors.
The data segment remains an exciting frontier driving investment in the region’s telecoms as attention draws away from more saturated voice segment. The focus in this market lies in broadband, data and IT solutions like cloud services, mainly because using mobile phones to access services like Facebook, twitter requires limited bandwidth usage. More established companies looking to extend their footprint on the continent are now looking at some of the struggling companies in the industry, as has been the case with Warid Telecom in Uganda and Access Kenya in Kenya.
Trends reflect dominance of the energy, mining and utilities sector. In H1 2012, the sector accounted for 16 deals and was worth a third of the total M&A deal value on the continent. In the same period the subsequent year, the sector accounted for 20 deals and, at USD 9.5 billion, more than twice the previous year’s value , representing more than two thirds of the M&A deal value for the period in question.
However, the region’s slowed growth will not hinder investment in the region considering that the slowest projected growth, in Kenya, is expected at 4.5 per cent, while Rwanda’s growth is projected at 7.1 per cent. This, when compared to developed markets whose projected growth remains below 3.0 per cent, is a strong performance. A combination of higher returns, growth potential and the resource boom should push more deals East Africa’s way seeing as the region has vast potential yet it only accounts for 3.0 per cent of global M&A deal value.