Inbound M&A deals to Africa have almost halved in past quarter

New figures from Baker McKenzie’s Cross-Border M&A Index show there were 17 inbound M&A deals in Africa in the second quarter (Q2) of 2017, a 48% drop from 33 deals in Q2 2016. On a quarter-by-quarter basis, inbound deal volume also dropped (by 45%) from 31 deals in Q1 2017. The total inbound deal value in the second quarter of 2017 amounted to $780m, decreasing by 83% year on year, and 88% on a quarter-by-quarter basis. Morne van der Merwe, managing partner of Baker McKenzie in Johannesburg, explained: “Foreign direct investment in South Africa has decreased and this will continue until the local investment climate stabilises. Due to the credit ratings downgrades, the cost of raising capital for acquisitions has become more expensive, making deals more difficult. In addition, the rand has been one of the most volatile currencies in 2017 and this volatility has suppressed deal appetite. “These factors, combined with recent political instability and uncertainty, have resulted in a perception in the market of increased risks of doing business in South Africa. Global players are finding more attractive investment destinations elsewhere. “Further, almost half the continent’s M&A activity flows through South Africa, so recent South African developments have had a negative knock-on effect in Africa. Political uncertainty in other jurisdictions on the continent, such as the current election in Kenya, has also made investors wary of African dealmaking in the short term, although we expect this to change once stability returns to the region.” The top target industry by volume and value in Africa was mining, which accounted for 23% of total deal count, and $312m (or 40%) of total value. In terms of outlook for the mining sector in South Africa, Mr van der Merwe said there is widespread agreement that the Mining Charter in its present form will severely impact the mining sector in South Africa. In addition, the recent proposal regarding a possible moratorium on mining and prospecting rights and the granting of applications is cause for concern, he said. Looking at the technology sector, the M&A Index shows no inbound technology deals in Africa in second quarter of 2017. This is in comparison to the global results, which note a high volume of technology deals in the first half of 2017. Mr Van der Merwe explained: “Africa has several technology hubs, including one in Cape Town, South Africa, and the development of technology in the banking and finance sector for mass usage on the continent, is well advanced. “A positive explanation for there being no inbound deals in this sector in Q2 2017, is that this is not due to lack of IT development in Africa; to the contrary, it is because IT companies are structuring their operations in a way that allows them to enter into partnerships offshore and bring their operations into Africa through licencing arrangements.” One surprise in the Index is that Australia was the leading investor, outranking both China and India.

Inbound M&A deals to Africa have almost halved in past quarter

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