Healthy pipeline should see deals pick up in Africa

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The reasons? Paras Shah, Nairobi partner at Coulson Harney, part of the Bowman Gilfillan Africa Group, attributes the easing of activity to several issues. Security has dampened the execution of deals - the interest is there, he says, but investors are adopting a wait and see approach.

Another is the depreciation of African currencies against the US dollar - sellers and targets are seeking dollar protection.

Weaker activity is most noticeable in the mining and petroleum industries. The drop in commodity prices along with local confusion about legislation governing oil concessions and mining leases has arrested merger and acquisition activity in these sectors. Shah believes exploration companies in particular will have to sell assets to survive and this will come through in merger and acquisition activity in the next 12 to 24 months. China is expected to be waiting in the wings to pick up value assets at particularly cheap prices.

In East Africa a great deal of interest has been seen in the insurance sector. According to Shah, consolidation in the industry is ongoing among the multinationals and pan-African companies. There is a huge push out of SA in the form of, for example, Old Mutual and Sanlam and this is expected to continue for the rest of the year.

Private equity continues to be active, with huge interest from around the world. Africa funds, he says, are continually being set up in all sectors ranging from financial and retail to manufacturing and real estate. South African pension funds such as Stanlib are interested, particularly in the real estate funds. Multinationals such as Helios Investment Partners and Catalyst Principal Partners are also very active. The downside, though, for these private equity funds is finding investments of reasonable size.

Merger and acquisition activity in telecoms has changed. According to Shah, players in East Africa have halved and the industry is governed, more or less, by a monopoly. He believes the nature of future activity in this sector will be around infrastructure such as towers where assets are stripped out.

With a healthy pipeline of deals, the second half of 2015 is expected to be as good as 2014 for merger and acquisition activity. Regional players are expected to make their presence felt in the next 12 to 24 months as exposure in the rest of the continent is sought, particularly in the financial sector.

The long-term view is expected to be rosy with infrastructure coming into play in the next two to three years. Shah believes this will offer attractive opportunities for investors.

Source: Business Day