DealMakers AFRICA Q2 2021
From the editor's desk
The effects of COVID-19 on M&A activity has highlighted and changed not only the way deals are structured, but also the expectations of the end goal. This issue carries a number of interesting articles to this point.
There is increasing pressure for transactions to take account of the impact on the environmental, social and governance (ESG) strategy, and an interesting article takes a look at how ESG considerations are set to influence dealmaking, investment and growth on the Continent. Also included is an article on the restructuring of distressed private equity portfolio companies and the emergence of ‘Earn-outs’ as a popular mechanism to structure and secure deals in the face of ongoing COVID-induced uncertainty.
The effect of the pandemic on merger and acquisition activity across the Continent continues, although a gradual recovery is notable. Analysis by DealMakers AFRICA shows that the total value of deals (excluding South Africa) captured for the period H1 2021 was US$6,61 billion (up 17% on H1 2020) off 261 transactions (pg 3). Behind the increase in value, which is deceptive, are a number of large transactions – just 10 deals constitute 67% of the total value at US$4,429 billion (pg 4). A more meaningful view, perhaps, is the jump in the number of transactions announced. Of the 261 transactions announced (up 40 deals on H1 2020), 54% of these involved private equity firms, reinforcing the view that, at present, the main driver in investment on the Continent is private equity, especially considering that, more often than not, the values of these deals are not disclosed.
West Africa continues to be the most active region, pulled along by Nigeria, which saw US$1,77 billion in investment over the period (the bulk of that for the region), off 44 transactions, 26 of which were private equity in nature. Interestingly, Egypt, which has made the most notable recovery, has four deals in the top 10 by value for the period across various sectors – pharmaceutical, energy, financial and education, and is less reliant on private equity activity. A robust recovery in M&A activity continues to elude East Africa, and Kenya in particular. While the value of deals reported in Kenya declined 59% to US$57,6 million, the number of deals announced was up 18% to 40 transactions, 30 of which were private equity transactions.
Until such time as countries can fully open up their economies, investors will remain hesitant. While technology has proven to be a reasonable substitute for certain aspects of the dealmaking process, the need to ‘kick the tyres’ remains. The call by the World Health Organisation for wealthier nations to halt booster shots of the COVID-19 vaccines, and to do more to share doses with poorer countries who are struggling to get access for their most vulnerable, can only accelerate a return to ‘normal’.
DealMakers Online, the database established in 2000, provides a wealth of information on M&A and capital market activity on the Continent. In this issue (pg 6) a new section, ‘AFRICA in Numbers’, highlights trends that we hope will add value. •