Africa New M&A Destination for 2012

Africa New M&A Destination for 2012


A recent Thomson Reuters Emerging Markets Legal M&A and Mergermarket Reviews for Q1 2102 reveals that M&A activity inAfricais on an upswing.

Michael Katz, Chairman at ENS (Edward Nathan Sonnenbergs), says the figures reflect the increase in M&A deals that ENS has counselled on so far in 2012.  ENS ranked first for ‘deals announced’ in the first quarter of 2012 and second for ‘deals closed’ in the Thomson Reuters survey.

“We have seen a marked increase in M&A activity across the board, in both volume and in value, over the first few months of 2012. All eyes seem to be on Africa at the moment and with the troubling climate inEurope, the time is ripe for firms to take advantage of the growing African middle class,” he adds.

Deal activity totals $8 billion

According to the Thomson Reuters Emerging Markets Legal M&A review, deal activity inAfrica& the Middle East in Q1 2012 totaled $ 8bn. While this represents a decrease of 52% when compared to Q1 2011 ($ 16.8bn), the figure is significantly higher (19,3%) than deal activity measured in Q4, 2011 ($ 6.7bn). According to Mergermarket figures, a total of 30 deals amounted to $3.5bn of M&A activity inAfricain the first quarter of 2012.

Furthermore, the Thomson Reuters figures for Q1 show that ENS’ market share of deals announced in South Africa has increased by 13,7% on the 2011 figure and holds a rank value of deals announced in the period of 1 January to 30 March of $407 million.

Growth set to continue

Katz is confident that this growth trend will continue into the next quarter. “Although the figures for 2011 showed a significantly downward trend through the year of 2011, the new data for 2012 strongly suggests that M&A activity is on the up,” he says.

Furthermore, he explains that, in his experience the first quarter trend is not usually the strongest for the year. As such, he also expects M&A activity to increase even more towards the end of this year. “There is a lot of interest in new African deals. Our deal pipeline right now is looking vastly better than it was at the same time last year.”

Mining enjoys highest levels of activity

Of 236 African deals tracked by Thomson Reuters between September 2011 and March 2012, the energy, mining & utilities sectors registered the highest level of activity. According to Scott Nelson, head of ENS Africa, this heavy weighting towards the energy, mining and utilities sectors as the major drivers of M&A activity in Q1 2012 is not unexpected, although some destinations of the deals were surprising.

“What is interesting to see is the shift towards countries not traditionally viewed as investment destinations – such asEthiopia.  This is largely due to governments efforts to open up the countries’ economies. We believe this pick-up in privatisation could seep through to other economies as sectors start opening up, which will lead to significant M&A activity in the region,” he says.

Second to mining and energy, he notes the importance of the consumer focused and consumer facing sectors that are the other principal drivers of substantial activity. ”African companies with significant consumer bases are becoming increasingly attractive for foreign companies to acquire. We expect this to be an area of growth in the short-medium term,” he says.

The largest deal announced in the first quarter of 2012 was the acquisition of the Kolwezi Tailings project, and the Frontier and Lonshi mines and related exploration interests, all located in theKatangaProvinceof the Democratic Republic of Congo, by Eurasian Natural Resources. The deal was worth $ 1.25bn.

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