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As global mergers and acquisitions (M&A) hit record highs in 2015, dealmaking activity in sub-Saharan Africa remained relatively muted over the year, despite an uptick in activity in key markets and sectors towards the end of the 12 months, a report by international legal firm Allen & Overy has shown.
“A disappointing performance in 2015 is, however, understandable. Investment into Africa has traditionally been primarily focused on the resources sector and so the fall in oil and other commodity prices and a slackening of demand from key markets, notably China, has hit Africa particularly hard,” the firm’s latest M&A Insights report read.
In certain African markets, the global decline in commodity prices had been exacerbated by local difficulties, it continued, describing South Africa as a “tricky market” for resources investment owing to government interference, labour issues and regular power outages.
Other traditionally strong sectors were, however, faring better, with the telecommunications sector continuing to see a good stream of infrastructure deals and increased operator consolidation.
“With increased levels of capital being built up to invest across the continent, [we] expect this year to be a livelier period for transactions . . . [with] further deals on the cards in the year ahead.
“Investment in power and transport infrastructure remains a pressing need across the region and a potential key focus for inbound investment. Such investment can act as a real spur to economic growth but requires governments to create the right legal and commercial frameworks for projects to
proceed,” Allen & Overy said.
In South Africa, the firm expected the government to clarify its approach to inward investment in several crucial areas, not least of which was the foreign ownership of land.
Investment in less traditional areas on the continent, such as consumer goods and retail and financial services also held potential, as economies grew and the middle-class expanded.
“The appetite to invest is certainly there, but a scarcity of good assets remains an obstacle, albeit probably a relatively short-term one.
“Investors within the region are also looking for opportunities across the continent and overseas . . . [and], with key African economies forecast to see some of the highest growth in gross domestic product in the coming years, we continue to believe the current dip in transactions activity will be short-lived, with activity beginning to grow again,” it stated.
While African dealmaking remained muted over the year, the global dealmaking environment swelled, with transactions in 2015 rising to record levels and ending the year at $2.76-trillion – ahead of the previous M&A high of 2007.
The bulk of activity was seen in the telecommunications sector, followed by the life sciences industries, energy sector, consumer sectors and financial services industries.
Some 33% of deals occurred in Western Europe, followed by the US, at 28%, Asia Pacific, at 14%, and Greater China, at 13%.