$20.4bn in deals inked in Africa last year

MERGERS and acquisitions (M&A) in the consumer goods sector in Africa accounted for $7.7 billion (R109.6bn) of $20.4bn of the total deals completed on the continent last year, according to a report released yesterday by M&A intelligence group Mergermarket.

The $20.4bn figure equated to an increase of 68.4 percent from the previous year. But the report said the prolonged downturn commodities cycle and volatile rand had affected South African deal-making, which recorded a 40.5 percent decrease compared with the comparable period.

In Africa, the consumer goods sector outperformed energy and mining to be the high performing industry.

Ian Cruickshanks, the chief economist at the SA Institute of Race Relations, said Africa, due to its population growth, was an attractive investment proposition to any company seeking to reap maximum return on investments.

“Mining is becoming more technical and is a capital intensive sector… the total consumer market in the continent is still not that well served, so big potential still exists for the sector to grow,” Cruickshanks said.

The Mergermarket report said that as the South African economy kept moving from an economy anchored in the natural resources sector, the consumer goods sector was the next big thing.

“Investors will continue to search for opportunities within the growing consumer industry,” the report said.

South African companies led the way on the continent by spending a total of $6.2bn in 25 deals, which equated to 87 percent of the region’s outbound M&As.

The report credits South African retailer Steinhoff International with leading the country’s spending spree.

Spending spree

Steinhoff acquired US-based bedding company Mattress Firm Holding in a deal valued at $3.8bn.

Meanwhile, European investors led the way in acquiring African businesses and invested a combined $4.2bn in a total of 57 transactions. The report did not include the Anheuser-Busch InBev deal to acquire its rival SABMiller.

Craig Forbes, the co-head of corporate finance at Rand Merchant Bank, said South African companies were increasingly looking at investing offshore and to snap up assets the multinationals were selling off.

“Lots of South African companies are looking at other markets to make acquisitions and offshore themselves. Multinationals are divesting and offloading their non-core assets to sort out their capital structure,” Forbes said.

Forbes said private equity was very active in South Africa. However, he believed investors were likely to “sit in the side and wait and see” with the uncertainty of whether the country would be downgraded by the rating agencies or not.

Standard Bank came first as the financial adviser that handled the most valuable deals and advised on deals worth $6.9bn.

Law firm Edward Nathan Sonnenberg gave legal advice to deals in the tune of $7.8bn.