Management Hints

African M&A Deal Market – Things to Know

Mergers and acquisitions have always been drivers of international business development. The growth in the volume of international transactions makes the topic of African M&A relevant. The article discusses the determinants of the effectiveness of African M&A transactions.

Basic trends in the global M&A market

M&A transactions are transactions to strengthen the business through a capital merger, which includes the transfer of ownership of the acquiring company and the change of control over the target company. Transaction methods are divided into public tender offers, private transactions, and open market purchases. Public tenders dominate large deals as there are restrictions placed on these deals; the rest is private deals.

The study notes that companies make cross-border transactions to acquire new customers and markets and gain access to natural resources, intellectual property, industrial assets, and human capital. According to the study data, companies strive to be present in several countries: 86% of respondents are positive about their latest international transactions, and 34% are planning new acquisitions in the next two years.

The European market in 2013 became the main market for M&A transactions – such transactions accounted for 38% of all transactions in the region. The North American market, which in 2012 was equal to the European market in terms of the amount of foreign investment in cross-border transactions, reduced its share to 25%. The fastest-growing market was the African market, where the percentage of cross-border M&A transactions increased from 4 to 7%.

The place of Africa in the M&A market

According to estimates by the World Economic Forum, Africa is the fastest-growing continent that will be home to 13 of the world’s largest megacities by 2100. Therefore, it is not surprising that Africa is an important market for M&A transactions, which continues to expand its international presence and ensure its presence in key markets.

Africa attracts a wide range of investors interested in commodities and the continent’s rapidly growing markets. They want to benefit from growth rates among the highest globally – two-thirds of African countries will expand at speeds above 5% in the coming years – and take advantage of favorable demographic developments.

The African M&A market is associated with the redemption of shares from their owners in the required quantity, and therefore operations are carried out mainly on the secondary securities market. However, there are rare exceptions when an additional issue of shares is necessary to raise the required cash.

Key trends for industries

The African M&A market is still focused on commodities. Sectors such as energy and mining dominate M&A activity in many countries. Countries like Mozambique, Angola, Ghana, and Tanzania are big bets on oil and gas to attract foreign investment. In contrast, there was even a major acquisition in the retail sector in South Africa last year. US retailer Walmart acquired a majority stake in South African supermarket chain Massmart for $2.1 billion.

There are main strategically critical motivational factors for the growth of cross-border M&A transactions:

  • Acquisition of intellectual property. Such deals often raise concerns about ownership, data and brand protection, and the need to rationalize and consolidate assets after a merger.
  • Acquisition of new skills and competencies through access to human capital. It often requires careful planning of the deal to level cultural and political differences and the development of corporate policies and incentive programs to retain employees.
  • Getting access to natural resources. Such transactions always raise questions related to policy, regulation and governance, and social and environmental impacts.
  • Strengthening the company’s competitive advantages through the acquisition of production assets. Pitfalls can include tax considerations, labor resources, and quality compliance issues.