The edge in Africa
STRENGTH and depth of practitioners are first and foremost the edge in Africa, says Scott Nelson: Global Private Equity Practice at commercial law firm Baker & McKenzie. “Although Africa and South Africa face a number of socio-economic and other market volatility challenges, there is still a clear and consistent trend of heightened interest in the African continent from a mergers and acquisitions (M&A) perspective.
Commodity cycles, prices, exchange rate and currency issues, among other factors, are impacting key African economies and investors are having to take these issues into account,” explains Nelson.
He points out that, “while current market conditions are leading to a degree of more 'cautionary' behaviour, deal flow remains strong, and there is no apparent sign of M&A activity abating”.
“Growth in the market is robust compared to certain of the more developed economies and regions. Such investment activities are taken with a long term view, and the associated challenges are always better faced and navigated in partnership with a law firm with the deep expertise and knowledge to guide and advise.
“Baker & McKenzie is uniquely positioned to offer trade/strategic investors, and sponsors, alike exactly these skills.”
As a combination of both emerging and frontier markets, there are a number of challenges arising in connection with the execution and implementation of transactions, whether for sponsors, trade or strategic buyers, in Africa, where the lead time to closing a transaction can be more protracted when compared to other regions and more developed markets.
“Pre global financial crisis, Africa was seen as more of a risk than other markets. However, focus on the continent is increasing and African economies have generally become aware of the need for inbound foreign investment with a focus on ‘good house-keeping’ as an imperative to attracting foreign investment.
“Furthermore, the vast spectrum of different cultures, languages, economies, governance and currencies when compared to some other continents, brings along its own challenges.
“The proper assessment and management of risk in the context of any contemplated or proposed transaction is clearly fundamental, and the associated timeline implications of such analysis should be factored in from the outset,” says Nelson.
Managing foreign exchange risk has more recently become a challenge for largely dollar based investors, he notes. “However, given the long term nature of investment, this challenge should largely be manageable from a value perspective over the life-cycle of any deal.”
Baker & McKenzie assists its clients in navigating all such matters, advising its clients on the execution of M&A activity across the entire continent of Africa – for both strategic acquirers and sponsors – through its presence in key locations on the African continent, its strength and depth in London, Paris and other financial centres, and its key relationship law firms.
“Baker & McKenzie is extremely well equipped to deliver excellence in Africa, to its clients,” he says.
“Having a presence on the ground offers local insight into factors including regulations, compliance, competition, tax structures and other efficiencies.
“Baker & McKenzie has offices in strategic and key locations in both North Africa and sub-Saharan Africa, in addition to a large network of relationships with firms across those remaining countries of the continent where we do not have a physical presence.
“These relationships are actively and continually managed and are key to Baker & McKenzie’s client service delivery in Africa.”
He says that such relationships are essential to providing companies with the legal assistance required for M&A and other transactional activities in Africa and “we treat these partner firms as part of the Baker & McKenzie team.
“Over the years, these relationships have become strong, meaningful and effective to providing the best advice to all our clients, and are a real differentiator for the firm”.
Furthermore, Baker & McKenzie has deep sector specialisation in natural resources, telecoms, healthcare, and more, and in-depth experience in sectors which are highly relevant to investment activity in Africa.
“We can therefore offer not only transactional advice but also are able to provide a team of specialists who are able to bring deep and granular knowledge of such sectors to these transactions.
“Africa is a critical market for Baker & McKenzie and a market we want to service. We see the growth and potential Africa offers and are able to assist any corporate client or enterprise – whether organically or acquisitively, wherever their needs may arise on the Continent,” adds Nelson.
Business law firm Cliffe Dekker Hofmeyr (CDH)’s Director and National Head of Corporate and Commercial practice, Willem Jacobs, says that “we’re still seeing some activity in South Africa, while the rest of Africa remains relatively buoyant”.
Jacobs says that notwithstanding talk of large-scale investment coming from India and China, “they are not as big investors as everyone thinks”. He says the bulk of investment continues to come from what have been traditional sources of investment in the UK, EU and US.
“Inbound investment is not linked to any particular country, but is coming from all over – and quite cautiously. The Africa growth story is also not quite fulfilling its hype. He says it is “still a brave move to invest in Africa, especially those companies that haven’t previously been in Africa,” Jacobs concludes.