Cross-border M&A deals give access to new customers

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The survey, which examines the strategic drivers for cross-border deals, shows Africa's global inbound M&A market share growing 7% as international corporates seek new customer bases.

The report reveals the principal reasons companies undertake cross-border M&A deals as being to access to new customers or natural resources, or acquire intellectual property or human capital. Multinationals investing in Africa are primarily motivated by the first two drivers and the former is growing in importance, reflecting the continent's burgeoning middle class and increasing wealth.

Meanwhile, African companies are increasingly turning to cross-border M&A. African corporates are more likely than companies elsewhere to be planning a cross-border deal within two years. 50% of African respondents are contemplating deals as they seek to establish an international presence. Two-thirds of this cross-border activity is expected to be within Africa.

However, 20% of African corporates interviewed are looking at targets in Asia and a further 10% in North America, showing Africa's emerging multinationals have the ambition to look outside their continent and the confidence to enter developed as well as emerging markets.

Inward investment

"The search for a customer base is driving inward investment - Africa has a great untapped customer base, meaning capital is flowing into the region. Meanwhile African companies are growing more confident and international in their outlook," Morne van der Merwe, head of Baker & McKenzie's M&A practice in Johannesburg, said.

Due diligence remains a challenge though, with half of all survey respondents identifying establishing the credibility of revenue and financial accounts as the biggest hurdle to doing deals in Africa.

"Using advisors with extensive local market knowledge is key to overcoming this challenge," said Van der Merwe. "Allowing extra time for thorough due diligence and taking the time to get to know the management of the target company are also crucial."

The report highlights examples including a South African insurance firm making an acquisition in Nigeria primarily to acquire intellectual property, but finding a lack of clarity around ownership of rights a major problem. The solution was finding the right local advisors, who put in due diligence structures and solved legal and regulatory issues, eventually making the deal a success.

The report is based on Mergermarket data and a survey of 350 C-level executives around the world, all of whom had recently conducted a cross-border M&A transaction.