Mergers and Acquisition (M&A) in South Africa and throughout the African continent will continue to recover after showing remarkable growth in the first quarter of 2012, said the chairman of Edward Nathan Sonnenbergs (ENS) Michael Katz.
According to the latest Thomson Reuters Emerging Markets Legal M&A and Mergermarket Reviews, South Africa’s M&A activity showed growth of 13.7% to $407m in the first quarter of this year when compared to the 2011 figure.
Katz said he was confident that this growth trend will continue into the next quarter. “Although the figures for 2011 showed a significantly downward trend through the year, the new data for 2012 strongly suggests that M&A activity is on the up”.
He said the M&A activity was showing signs of improvement in Africa and the Middle East after a marked decline.
“We have seen a marked increase in M&A activity across the board, in both volume and in value, over the first few months of 2012. All eyes seem to be on Africa at the moment and with the troubling climate in Europe, the time is ripe for firms to take advantage of the growing African middle class,” he adds.
According to the Thomson Reuters figures deal activity in Africa & the Middle East totalled $ 8bn in the first quarter. ENS noted that while this represents a decrease of 52% when compared to first quarter of last year, the figure was significantly higher (19.3%) than deal activity measured in fourth quarter of 2011.
Katz said in his experience the first quarter trend is not usually the strongest for the year. As such, he expected M&A activity to increase even more towards the end of this year. “There is a lot of interest in new African deals. Our deal pipeline right now is looking vastly better than it was at the same time last year.”
Of 236 African deals tracked by Thomson Reuters between September 2011 and March 2012, the energy, mining and utilities sectors registered the highest level of activity. According to Scott Nelson, Head of ENS Africa, this heavy weighting towards the energy, mining and utilities sectors as the major drivers of M&A activity was unexpected, although some destinations of the deals were surprising.
“What is interesting to see is the shift towards countries not traditionally viewed as investment destinations – such as Ethiopia. This is largely due to governments efforts to open up the countries’ economies. We believe this pick-up in privatisation could seep through to other economies as sectors start opening up, which will lead to significant M&A activity in the region,” said Nelson.
Nelson said the importance of the consumer focused and consumer facing sectors that were the other principal drivers of substantial activity. ”African companies with significant consumer bases are becoming increasingly attractive for foreign companies to acquire. We expect this to be an area of growth in the short-medium term,” he says.
The largest deal announced in the first quarter of 2012 was the acquisition of the Kolwezi Tailings project, and the Frontier and Lonshi mines and related exploration interests, all located in the Katanga Province of the Democratic Republic of Congo, by Eurasian Natural Resources. The deal was worth US$ 1.25bn.