Massive increase in M&A deal value in SSA in 1H 2021
There was a 14% increase in mergers and acquisitions (M&A) deal volume and an astounding 576% increase in deal value in the first half of 2021 (H1 2021), compared to the first half of 2020 (H1 2020). There were 333 M&A deals announced in sub-Saharan Africa (SSA) in H1 2021, valued at USD 57.7-billion, according to Baker McKenzie’s analysis of Refinitiv data. H1 2020 recorded 293 M&A deals with a deal value of USD 8.5-billion.
According to Mike van Rensburg, Partner, Corporate/M&A Practice, Baker McKenzie Johannesburg, last year was a relatively difficult year for investors in Africa, with considerable uncertainty.
“Pandemic impacts had a limiting effect on numerous sectors and many deals had to be postponed as a result. The boost in M&A deal value in 2021 is, in part, due to a post-COVID boom, where last year’s postponed and delayed transactions were able to proceed in the first half of 2021.
The African Continental Free Trade Area (AfCFTA) has also led to increasing investor interest in SSA as new markets open and cross border transactions become more streamlined and efficient. Further, China’s ongoing interest in Africa, a commitment from the European Union to strengthen partnerships with Africa, the United Kingdom’s new trade agreements with numerous African jurisdictions, and a renewed Africa focus from the United States under President Biden, have all contributed to improved investor sentiment across the region,” he explained.
The highest volume of transactions in H1 2021 were in the materials (33 deals), financials (26 deals), energy and power (24 deals), high technology (14 deals) and telecommunications (nine deals) sectors. The sector with the biggest increase in deal volume was telecommunications, which reported an 800% increase from one deal announced in H1 2020 to nine deals in H1 2021. Deals in the energy and power sector increased from 10 in H1 2020 to 24 in H1 2021, an increase of 140%, and transactions in the financial sector increased by 136% from 11 in H1 2020 to 26 in H1 2021.
Van Rensburg noted that the pandemic had impacted all aspects of the materials sector, including the minerals and mining industry, which saw disruption to all parts of the mining value chain.
However, the increase in commodity prices, rising demand as a result of supply issues caused by pandemic bottlenecks, as well as the growing reliance on certain metals used in green products, have all contributed to good growth in the sector in H1 2021.
“Overall, the industry appears to have proven resilient to COVID-19, with many mining houses back in full production quicker than expected. The sector’s already strong commitment to Environmental Social and Governance (ESG) also appears to have been reinforced, most notably by ongoing environmental concerns and the social challenges experienced by employees and surrounding communities during the pandemic,” he noted.
He noted further that following the establishment of AfCFTA on 1 January 2021, financial institutions in SSA had an important role to play in facilitating trade between the multitude of diversified economies with different financial systems.
“The financial sector is leading the way in developing new technologies, such as artificial intelligence systems, advanced analytics and digital trade finance platforms, that will assist new financial processes and facilitate demand for capital, allowing market participants to be able to capitalise on the opportunities that AfCFTA will bring.
This increased demand for new financial products and services has led to an increase in investment in the financial sector in SSA in the first six months of the year, with a corresponding increase in the volume of technology deals.”
Van Rensburg explained that African consumers had shown a growing reliance on technology across multiple platforms, even well before the pandemic struck.
The growth of the continent’s digital economy has naturally been accelerated by the pandemic and this unabated demand for technology has caused extensive cross-sector disruption, with the financial, energy, transport, retail, health and agricultural sectors all seeking opportunities to expand their tech infrastructure in order to acquire the necessary skills and innovation needed to keep up with demand. Fintech is also a popular tech sector for investment in Africa and specifically in South Africa, Kenya and Nigeria.
He noted that demand for power in Africa was also spurring on investment in the energy sector. With access to power in Africa being hampered by the lack of access to competitive funding, the dire state of the continent’s utilities infrastructure and the need for energy policy and legislation to be adapted so that it can boost investment in the sector.
The combination of the rise of cost-effective renewable energy, the decentralisation of energy production, and improvements in energy storage, smart metering and other digital technology have the potential to revolutionize the way power is generated and consumed.
In Africa, the most noticeable trend has been the transition towards decentralised power solutions and solar home systems from being a niche sector dominated by NGOs, to being considered a mainstream investment focus by the big players.
The healthcare sector did not see any deals in the first half of this year, with many investors taking time to assess the impact of the pandemic. However, the expanding access to quality healthcare services and increasing domestic pharmaceutical manufacturing capacity will continue to dominate Africa’s healthcare sector development agenda, with investment expected to follow in support of these objectives,.
“Clearly, COVID-19 caused a massive spike in the already increasing demand for affordable healthcare in SSA. Technology-focused healthcare delivery models, which allow for easier access to medical advice and care, especially in Africa’s rural areas, had already begun easing the constraints of the traditional delivery model and driving further investment in digital healthcare across Africa before the pandemic hit. M&A investors in this sector usually show long term commitment, understanding of individual markets and strong partnerships with local stakeholders and governments with the aim of improving access to public healthcare,” Van Rensburg added.