By Dipo Olowookere

Despite Nigeria recording more deals in the first half of 2020, the total value of the transactions went down to $204 million (N73.4 billion at N360/$1).

According to the latest Refinitiv M&A data released by Baker McKenzie, there were 26 deals in the period under consideration in contrast to 18 of the first half of last year, indicating a 44 per cent increase.

However, the report said the total deal value of the transactions, which comprised local and cross border, went down by 46 per cent to $204 million from $375 million in H1 2019.

Baker McKenzie explained that this decline in the total value of the deals was likely because most of the deals listed for H1 2020 have no disclosed deal value.

But it said the number of cross border deals increased by 18 per cent in comparison to the first half of 2019, while domestic deals were also up by 86 per cent year-on-year.

The firm noted that about 50 per cent of the mergers and acquisitions transactions in Nigeria were cross border transactions, totalling $40 million, noting that deals were evenly distributed among industries, with financials and high technology recording two inbound deals each and the industrials sector recording two outbound M&A deals.

The $21 million acquisition of Interporto di Venezia SpA in March 2020 by an Orlean Invest Holding subsidiary for $21 million was the biggest cross border deal in Nigeria in the first half of 2020, the report said.

According to the Head of Africa for Baker McKenzie in Johannesburg, Mr Wildu du Plessis, policy and economic uncertainty, including lack of access to foreign exchange, stalled dealmaking in Nigeria in recent years.

“However, the Central Bank of Nigeria (CBN) introduced a foreign exchange window a few years ago, allowing trading at market-determined rates, which boosted the supply of foreign exchange and encouraged dealmakers.

“The government was also looking at more business-friendly legislation. The Nigerian economy was already impacted quite severely by the disruption in oil markets in recent years, but COVID-19 has added extensive damage to the economy, and this will undoubtedly impact negatively on M&A numbers going forward,” he said.

For South Africa, the value of M&A transactions dropped 60 per cent to $3.3 billion in the first half of 2020, down from $8.2 billion for the same period last year (H1 2019).

Also, the volume of M&A deals in the country fell by 18 per cent year-on-year, with 132 transactions recorded in H1 2020, down from 160 in H1 2019.

Domestic M&A activity in South Africa dropped 18 per cent to 64 transactions, down from 78 in H1 2019. Domestic deals were valued at $1.7 billion in H1 2020, down 71 per cent year-on-year.

Cross border transactions reflected the same downwards trend, with M&A volume down 17 per cent to 68 deals, and deals valued at $1.5 billion in the first half of 2020, down 32 per cent from the same period last year.

It was observed that Barloworld’s acquisition of the equity assets of both Wagner Asia Group and SGMS LLC by its Mongolian subsidiary, for $212 million each, were the biggest cross-border transactions in South Africa in the first half of this year.

In the Sub-Saharan Africa (SSA) region, the report said M&A volume decreased 24 per cent to 254 deals, compared to 338 deals for the same period last year.

Also, the total value decreased by 56 per cent to $6.8 billion in the first half of 2020, compared to $15.3 billion in H1 2019, with majority cross border deals at 160 transactions worth $4.8 billion.

It said there were 89 inbound deals in the region during this period, valued at $1.1 billion. The primary target was the materials industry with 24 deals, totalling $305 million.

The United Kingdom and the United States were the primary investors with 17 and 15 deals, worth $161 million and $658 million, respectively.

The region also reported 49 outbound transactions worth $3.6 billion. The industrials sector was the most targeted with nine deals, while the materials and telecommunications sectors had the biggest deal values, totalling $1 billion each.

According to Mr Du Plessis, “There is broad consensus that 2020 and 2021 will be very difficult years across all sectors in Africa, with severe humanitarian challenges, reduced demand across most sectors, constrained domestic economic activity, weaker currencies, supply chain disruptions and increased regulations and restrictions causing business disruption.

“Some sectors will battle to recover while others, such as the technology sector, are likely to be better able to adapt and take advantage of current conditions.”

“M&A activity in Africa going forward could come from distressed M&A transactions. Buyers with strong market positions or balance sheets and an appetite for risk could seek to capitalise on the opportunities available in the most challenged sectors, such as retail, transport, energy, construction, hospitality and leisure, as well as the opportunities in the sectors that have performed well during the pandemic, such as those in technology and healthcare and Fintech.

“The oil & gas industry and non-core infrastructure sectors are also facing significant stress, which might produce opportunities for buyers.

“The bottom line is that there will be very few sectors who have not been badly affected by the pandemic, but this could produce opportunities for buyers who have done their homework and have an appetite for risk,” he added.

According to him, the current developments in terms of the continent’s trade relationships also point to improved investment opportunities in Africa in the medium term.

Shifting global trade patterns have seen the major players turn to Africa to find new avenues for trade and investment.

Examples include the recent Economic Partnership Agreements signed with the UK to govern bilateral trade with certain African countries after Brexit; China’s continued interest in Africa, especially in terms of the Belt and Road Initiative (which might endure short term slowdowns but offers long term gains in digital programmes and sustainability); the recent United States Africa strategy, which has a renewed focus on trade and investment between the two regions;  the European Commission’s Comprehensive Strategy with Africa, published after COVID-19 and positioning the EU as an close ally of Africa; and the African Continental Free Trade Area agreement, postponed to 2021 due to COVID-19, and intended to streamline intra-African trade across the continent and reduce the continent’s dependence on foreign investors.

“So, while Africa, alongside the rest of the world, will be weathering the devastating effects of COVID-19 for some time, the future M&A forecast looks brighter, with good investment opportunities becoming clearer across the continent once the pandemic eases,” Mr Du Plessis noted.

In the report, Baker McKenzie said going forward, dark clouds remain over the M&A market in Africa in the short-term, with economic uncertainty likely to cause a reduction in foreign investment in Africa.

However, recent developments regarding Africa’s policies on trade and investment, and its renewed partnerships with major global economies, brighten the continent’s prospects for medium-term recovery, it submitted.