African M&A dips slightly in 2018 but some regions are bucking the trend

While dealmaking value was marginally down year on year, a number of countries are making comebacks

M&A in Africa totaled US$21.1 billion in 2018, a slight drop compared to the US$22 billion recorded in 2017. Deal volume, however, fell more precipitously from 272 in 2017 to 206 in 2018.

In the first quarter of Q1 2019, this trend continued with volume (30 deals) falling by 41% but value (US$3.2 billion) slipping by only 19% compared to Q1 last year.

The Energy, Mining and Utilities (EMU) sector dominated the region’s M&A tables last year. There were 44 EMU deals totaling US$5.6 billion in disclosed deal value. The TMT sector registered the second-largest total deal value in 2018 and in 2019 so far. There were 22 deals in the sector in 2018, totaling US$4.6 billion in total disclosed value.

In Q1 2019, EMU was once again the top sector registering nine deals in the region, worth US$1.3 billion in total. The largest deal of the year so far—mining firm China Molybdenum’s US$1.1 billion planned acquisition of a 24% stake in the Tenke Fungurume mine in the Democratic Republic of Congo—made up much of that total. Demand for cobalt is expected to take off as it is a crucial element in lithium-ion batteries, and Tenke Fungurume is one of the world’s largest known cobalt depositories.

Nigeria hits back after oil price slide 

The Nigerian economy was seriously affected by the oil price slump in 2014, falling into recession in 2016–but growth is now steadily improving. The International Monetary Fund (IMF) projected Nigeria’s GDP growing at a rate of 2.1% this year and 2.5% next year, up from 1.9% in 2018 and 0.8% in 2017.

Total M&A value in Nigeria for 2018 was US$3.7 billion, a 95% increase on the year before. Like much of the world, however, Nigeria’s M&A market got off to a slow start this year: there were three deals in Q1, only one of which had terms that were disclosed: Belgian PE Vectis’s US$12 million acquisition of bread and snack manufacturer Leventis in the consumer sector.

This particular industry is one of the most promising for dealmaking, given that Nigeria is the most populous country in Africa and a good base for distribution networks to other countries. Last year, Nigeria witnessed its largest-ever deal in the consumer sector, Kellogg’s US$419 million deal to acquire a 50% stake in packaged-food producer Tolaram Africa Foods.

Another sector on the rise is infrastructure. Two construction deals, Cement Company of Northern Nigeria’s acquisition of Kalambaina Cement Company for US$864 million and US-based PE firm Milost’s acquisition of Ibeto Cement Company for US$500 million, were the second- and third-largest deals in the country of 2018, respectively.

The government of President Muhammadu Buhari, who was recently re-elected, has made improving infrastructure one of its main priorities. Earlier this year, the minister for trade and investment said the country planned to spend US$20 billion on infrastructure over the next decade.

Egypt’s economic rise brings investors back in 

Egypt’s economy is on the rise after several tumultuous years. The IMF is projecting that GDP will grow at a rate of 5.5% this year, up from 4.2% in 2017.

With the economy stabilizing, the country has been attracting foreign investors, especially lenders drawn by the high yields on offer. Last year, Egypt saw US$2 billion worth of M&A deals, a significant increase on 2017’s US$390 million. Volume also rose, from 10 to 15 deals. And a renewed focus on privatization and burgeoning natural gas production could mean a robust year for M&A in 2019.

Nearly half of the total annual value in 2018 consisted of Italian energy firm Eni’s sale of a 10% stake in the Zohr offshore gas field to UAE-based Mubadala Petroleum for US$934 million. Production at Zohr, the largest natural gas find in the Mediterranean, began in December 2017 and is expected to accelerate this year.

Meanwhile, Eni last summer announced it had discovered another gas field in the Mediterranean, called Noor. While exploration is still in its preliminary phases, Noor could be a significant find, and in December BP announced it had acquired a 25% participating interest in the concession from Eni for undisclosed terms.

The government’s announcement last March that it would sell shares in 23 state-owned companies on the Egyptian Exchange offers M&A opportunities outside of EMU, the dominant sector for M&A over the past ten years.

South African M&A on the rise 

Total M&A value rose by nearly half to US$9.7 billion in South Africa last year compared to the year before, while deal volume remained flat at 79 deals. The best performing sector was TMT, which registered US$4.4 billion in deal activity, due in large part to one deal, internet and media group Naspers’ spin-off of its satellite TV unit MultiChoice Group to its shareholders, which valued the business at US$3 billion.

The South African economy has been growing sluggishly since 2014, and went briefly into recession in October 2018. And while GDP growth is expected to accelerate somewhat this year and next, the IMF is projecting growth of only 1.2% this year and 1.5% next year.

General elections last week delivered the ANC party its worst results since the end of apartheid 25 years ago, but the party remained in power—albeit with a reduced majority.

So far in 2019, the first quarter has seen ten deals worth US$710 million in total deal value, an improvement in deal value the first quarter of last year, which registered 12 deals worth US$210 million. With incumbent president Cyril Ramaphosa set to remain, and to carry out his anti-corruption and more market-friendly reforms, there’s a good chance this pace of deal activity could be sustained for the rest of 2019.

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