Africa M&A deals slow – Rencap

MERGER and acquisition (M&A) dealmaking may slow in Africa in the short term as currency weakness and lower commodity prices eat into companies’ earnings, making them less attractive targets for foreign investors, according to Renaissance Capital.

“M&A activity will remain comparatively soft in the short term, as investors remain wary of currency issues in a number of African markets,” said James Friel, the global head of investment banking at Renaissance.

“Current commodity prices are not comparable to where they were four or five years ago,” Friel said on Wednesday. “As a result, activity in the metals and mining and oil and gas sectors will remain subdued.”

Most African currencies have come under pressure this year. Zambia’s kwacha has lost almost 40 percent to the dollar as copper traded near sixyear lows, crimping a key source of revenue for Africa’s second-largest producer of the metal. The kwacha is the fourth-worst performing currency, according to Bloomberg data.

Oil-producing Angola’s kwanza has slumped 24 percent this year amid low crude prices, while the central bank in Nigeria stemmed a slide in the naira by imposing foreign-currency limits in March. Nigeria, Africa’s biggest oil producer, would probably adopt a free-float regime in the next six to nine months, helping drive export growth, Friel said.

The poor outlook for gold prices was reducing the appeal of mining companies in South Africa and Ghana, Africa’s leading producers of the metal, said Friel. The US Federal Reserve will consider tightening policy at a meeting this month and higher rates diminish gold’s appeal because it doesn’t pay interest or give returns like assets such as bonds or equities.

Renaissance, which participated in five capital-raising deals in east Africa over the past year, was taking part in another two such deals in the region and multiple similar deals in Nigeria, Friel said. – Bloomberg