- Posted December 30, 2013 by
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East Africa 2013: Year of vibrant business acquisitions and mergers
The year 2013 was one of the most active in recent times in terms of business acquisitions and mergers.
The allure of a growing middle class, the increased opening up of the markets and improved regulatory environment have raised the appetite for M&A deals in the East African region.
In order to stay ahead of the competition, leading companies invested millions of dollars in buyouts and mergers to strengthen their presence in East Africa.
According to the 2013 Deal Drivers Africa, published by Merger market, PE investors in Africa are less attracted to capital-intensive sectors such as energy and mining and prefer longer term investments in sectors such as consumer, financial services and pharmaceuticals, medical and biotechnology.
“In these sectors, growth is more directly linked to the expansion of the wider economy and individuals’ increase in discretionary incomes. These areas offer high returns and far less capital and political risk than the extractive industries,” said Scott Nelson of ENSafrica, one of the report’s authors.
“Investment areas popular with private equity tend to be consumer facing, which is a concept that cuts across many industries. It is almost treated as a sector in and of itself on the continent,” he said.
In Uganda, deals have tended to concentrate on the financial sector, while in Tanzania they have gone for gas, with most of the players being major global oil companies. In Kenya, deals centred around the financial sector, and with most parties being Kenyan companies.
But even as the region continues to hit record M&A numbers, there are challenges, that experts say must be addressed.
“Two features stand out: transparency and political risks. Lack of reliable data can hamper the due diligence process and, in turn, slow down or halt the deal making process entirely. At the same time, high-profile incidents of politically motivated violence in some countries can taint investor sentiment towards the region as a whole,” noted the report.
Other issues of corruption — and target countries’ ability to deal with them — are often at the fore of international acquirers’ minds. “Buyers and sellers’ differing perceptions of country risk can often lead to valuation gaps,” the report says. Alongside are some of the major business deals that took place in East Africa.
by Hussein Mohamed
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