Trends in mergers and acquisitions in Africa

Although African economies have slowed under the COVID-19 pandemic and the fall in oil and commodity prices, the authors of a recent publication by the Boston Consulting Group remain optimistic about Africa’s economic prospects and, in particular, the future of its mergers and acquisitions ( M & A). Market – a small but important channel for investment in Africa traditionally rooted in the mining, energy and utilities sectors. Although Africa’s share of the global M&A market is small – the report captured only 2 percent of the global M&A market of $ 3.1 trillion in 2010 – the volume of private equity Transactions on the continent have increased by around 6 percent per year since 2012. By 2016, that growth had resulted in more than $ 30 billion in investments managed by over 200 funds for Africa.

Despite the tremendous disruption of the COVID-19 pandemic on the growth path of African economies – and the M&A market in the region – the authors note that some historical trends accelerated faster than others during the pandemic. When analyzing a decade of M&A performance data and market activity data, the authors identify five distinct trends:

  1. “African Acquirers.” Africa-led acquisitions across the continent are on the rise.
  2. “PE presence.” Private equity investors targeting Africa are on the rise.
  3. “Tech is born.” African technology start-ups attract numerous investors.
  4. “Pan-African Platforms.” The regional integration of Africa enables pan-African, multinational platforms.
  5. “State Portfolio.” State corporations stimulate interests in the privatization of their assets.

The authors note that despite the overall economic impact caused by the COVID-19 pandemic, some industries and many of these trends have grown faster than their historical development (Figure 1). Sectors in which M&A transactions (“deal activity”) have seen a massive surge include telecommunications, healthcare, financial institutions and consumer goods, which the authors attribute to digitization and the shift in consumer preferences during the pandemic. The privatization of private portfolios, which the authors said was a strategic tool for generating government funding through the sale of government-owned assets, also saw a sharp surge in transactions. Conversely, the natural resources (mining, oil and gas), energy and infrastructure industries, and transportation industries saw a small increase in transaction volume during the pandemic, except in government portfolios. The authors speculate that multinational investors trying to reduce the risk of their portfolio by reducing their exposure to African investments could create an investment vacuum and, consequently, significant investment opportunities for intra-African investors through their increasing absence.

Figure 1. Influence of COVID-19 on historical M&A trends by industry

Source: Boston Consulting Group, “What’s New and What’s Next for M&A in Africa?”, 2021.

This recent period of economic turmoil appears to follow a “decline and recovery pattern”, according to the authors, that is similar to the other recent global economic disruptions. The authors find a relatively consistent pattern of decline and recovery for the African M&A market in response to global economic shocks (Figure 2). Overall, they note that the African M&A market suffered a large depreciation of the business during economic shocks, but the market was quite resilient and historically has recovered to near its pre-shock high within a few years. However, this pattern will stop in 2016 as the African market has not yet reached the peak of its transaction value in 2006-2015. This steep decline after 2016, which the authors attribute to macroeconomic instability in Africa combined with the COVID-19 downturn, has decimated Africa’s M&A transaction value to $ 7 billion in 2020 – almost a tenth of its all-time high of the M&A market in 2008 and its lowest level since the dot-com bubble in 2002.

Figure 2. Decline and recovery trends in the African M&A market (2000-2020)

Source: Boston Consulting Group, “What’s New and What’s Next for M&A in Africa?”, 2021.

The researchers write that while ongoing macroeconomic instability and the COVID-19 pandemic have stunted the African M&A market, they see a gradual recovery within 18 to 24 months and a restoration of overall M&A market value in Africa Expect 2019 within three to five years. Overall, the authors remain optimistic about the recovery in global M&A activity and the economic growth potential of the African continental free trade area to foster economic integration, accelerate economic growth and attract foreign investment – a strong move to not just M&A – to revive the continent’s market but also for its overall economic recovery.

For more information on investing in Africa, see “Numbers of the Week: Trends in Private Investment in Sub-Saharan Africa,” “Numbers of the Week: Foreign Direct Investment in Africa,” “Placing Investment at the Center of African Development Strategy,” and The Book of Brookings Senior Fellow Landry Signé “Unlocking Africa’s Business Potential”.

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