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Takeover deals (and economic growth) are on the rise across Africa – KPMG report

About two-thirds of respondents in a KPMG survey expects M&A activity to increase over the next two years.

BUSINESS leaders in Sub-Sahara Africa not only expect to see a rise in mergers and acquisitions (M&A) but are also optimistic about the prospects of accelerated economic growth in the region over the next few years.

This is according to KPMG’s maiden Doing Deals in Africa Report, which said: “68% of respondents expected deal activity to increase over the next two years.”

This positive outlook followed a 21% increase in M&A deals, rising to 297 in 2022 from 2021. This figure is double that in 2020, showing a recovery from the Covid-19 pandemic. The recovery can also be seen in the value of the deals, which increased from $8.6 billion in 2020 to $19.2 billion.

“Overall, it represents an impressive increase and reflects the dynamism and immense growth potential of Sub-Sahara Africa.”

The biggest driver for investment in Africa is the region’s “abundant natural resources” and attractive asset valuations compared with more developed, lower-risk markets.

This can be seen in about a third of deals by domestic investors in the mining and energy industries, saying their most recent acquisition only ranged between $5 million to $15 million. A further 35% of domestic investors said their deals were valued between $15 million to $50 million.

There is a similar story with international respondents, who reported that 49% of their deals also fell within the smaller ranges.

Another key driver for investing in Africa was that it offered good deals in terms of valuations. This was one of the reasons an Australian company invested in a business in Senegal.

“Our objective was to acquire a company that was priced well and had good future prospects. We reviewed the potential integration challenges before completing the deal and most of them were manageable,” said the Australian group’s head of strategy to KPMG.

Positive prospects for South Africa

The optimism on the part of decision-makers came despite the difficult economic performance in South Africa, which has been hamstrung by its inability to maintain a constant supply of electricity.

Despite this, respondents were optimistic when it came to the country’s prospects when it came to M&A.

“South Africa and Nigeria are expected to see the lion’s share of this, being the top two destinations for future investments among those planning an acquisition in the region, as cited by 50% and 30%, respectively.”

KPMG said the economic prospects for the region was expected to grow on the back of a rapidly growing population, which according to the United Nations, was expected to reach 4.2 billion by 2100.

“In concert with rising urbanisation, industrialisation and the increasing significance of free trade reform on the continent, Africa is likely to grow into the foremost engine of global growth over the coming decades.”

Be cautious

Though Africa’s prospects are improving, KPMG warns there were still hurdles to overcome when doing business on the content. It noted issues like economic volatility, currency risk and political volatility were cited as the biggest challenges faced by respondents.

It also pointed out that 22% of domestic respondents, cited transparency issues and lack of information when completing due diligence as the biggest challenge.

It warned: “Investors must tread carefully when analysing target companies’ financials since any reluctance to disclose information could indicate potentially fraudulent activities.”

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