NAIROBI, Kenya, Feb 24 – Kenya, Nigeria and South Africa are Africa’s most attractive target countries for merger and acquisition activity (M&A activity).
This is according to the fourth edition of ‘Deal Drivers Africa’, published by merger market and independent global business risk consultancy firm Control Risks.
“Despite political turmoil in many countries, a prolonged downturn in the commodities cycle and related currency risk, Africa’s top economies have maintained investor interest with strong momentum in M&A across the majority of sectors,” reads a statement from Control Risks.
From the study, a 100 percent of respondents said they believe that cross-border deal making African countries will continue to increase.
Forty one percent of respondents believe that foreign buyers of African countries this year are expected to come from Europe, while those believing foreign buyers will come from Asia-Pacific stand at thirty nine percent. Sixteen percent of respondents expect more foreign buyers to come from North America.
Energy, mining and utilities are expected to generate the most M&A activity on the continent at seventy nine percent.
“After energy, mining and utilities, industrial and chemicals will be the second busiest sector this year at seventy two percent.”
Why the interest on Africa?
George Nicholls from Control Risks said that the downturn in more established markets make international buyer look out for new target.
“Capital is also more easily available and high-quality targets are offered at very attractive prices,” he added.
These activities are however faced by challenges.
According to the study, eighty six percent of the respondents think that regulatory uncertainty particularly compliance and integrity issues will be the principal obstacles.
This is followed by operational and security risks according to seventy seven percent of respondents.
Cyber security was given the highest importance by 60 percent of respondents when doing M&A activity on the continent.
“While most actors – 88 percent – acknowledge the fact that external advisers are crucial to the success of a deal, still only 19 percent use external support for due diligence assessments. Hence, many deals fail at the step of the very initial due diligence, as lack of transparency and local knowledge leads to lack of clarity in the ownership structures.”