Wave of optimism buoys M&A activity

Africa is open for business and the continent’s key hubs – Kenya, Morocco, Nigeria and South Africa – are playing a crucial role in connecting it with the rest of the world. Legalbrief reports that this was the resounding message delivered by speakers at an IBA conference that began in Cape Town yesterday. Under the theme 'Opportunities and Challenges in Mergers and Acquisitions Transactions', delegates addressed trends of inbound and outbound M&A deals since the 2016 global dip in M&A activity blamed on economic and political uncertainty in many key economies. Nigeria in particular witnessed a slowdown in M&A activities as a result of the economic challenges arising from the decline in global prices of crude oil and its impact on the Nigerian economy. Nevertheless, Osayaba Giwa-Osagie (Giwa-Osagie & Co, Lagos) said the West African giant remains an important investment destination, accounting for 43% of deal volume and 64% of reported private equity deals valued in the region between 2010 and 2016. He said that while Nigeria’s econonomy is on the rise, there is a need to improve trade relations between African states ‘to reduce the dependence on countries outside Africa'. ‘And there are fears that Africa will become a dumping ground for unwanted European products.’ At the same time, he noted that Nigerian companies have been guilty of squeezing out foreign competition. ‘In the past, when foreign companies have tried to enter the Nigerian space, numerous obstacles were set up by competitors to obstruct them. Government is aware of this and is formulating legislation to create a level playing field,’ he added.

Francophone Africa, which represents 20 countries, is increasingly viewed as an exciting region to do business, particularly since it is no longer dominated by French companies, said Patrick Larrivé (Dentons, Casablanca). And he noted Morocco is widely regarded as a gateway to the continent. ‘Its stable administration – even during the Arab Spring – has seen Morocco being able to market itself as an export base for Europe Africa and the Middle East. Mahesh Acharya (Kaplan & Stratton, Nairobi) said it’s also boom time in Kenya ‘where there’s lots happening with regards to the development of roads, railways and ports’. He said the economic upswing is also impacting on neighbouring countries. ‘For example, the growth into Ethiopia is slow but with a potential market of 100m people, it is becoming increasingly attractive.’ David Thompson (Cliffe Dekker Hofmeyr, Cape Town) said South Africa is enjoying an economic revival that is directly linked to the election of President Cyril Ramaphosa. He pointed out that the country was ‘in a holding pattern’ during the final months of the Zuma administration. ‘And a similar transition in Zimbabwe has given rise to a great deal of optimism. Our clients always say that it doesn’t matter how tough the environment is as long as there is political certainty and a clear legal framework,’ he said.

The positive sentiments expressed by most speakers at the two-day event were echoed by Michael Katz, chairperson of ENSafrica, who has been involved in many large M&A transactions, both in South Africa and cross-border. He told Legalbrief that ‘there’s a whole new mood sweeping across the continent’. And he said Ramaphosa’s efforts to create more business friendly environment in South Africa have been widely embraced. ‘We can see it in our practices, in every sphere of life,’ he added.

A similar theme was picked up in another session ('Shift from energy and mining towards Technology, Media and Telecommunications deals'). Recent major deals made in other sectors, including consumer, healthcare and TMT, such as the first in-market consolidation between TMT Finance Africa with IHS Towers in Lagos in 2016, have highlighted the massive potential for growth. Clint Wilson (Old Mutual Investment Group, Cape Town) addressed the pin tech triangle made up by Nigeria, Kenya and SA ‘where we are seeing the most activity’. The latter, he predicts, is fast becoming ‘Africa’s Silicon Valley’. ‘I don't think we fully understand this technology, how it will impact on our economies,’ he said. Challenges, such as high data costs and competition in the telecoms industry, were also addressed. Emmanuela Vunge (Lead Advogados, Luanda), said the role of Isabel dos Santos the daughter of Angola's former President Jose Eduardo dos Santos, who dominated the telecoms industry when she created Unitel (in partnership with Portugal Telecom) after a flawed tender process. To address this and other competition concerns, National Assembly MPs are discussing a Draft Law on Competition. ‘The challenge will be to make sure that the law will works in practice,’ she said.