Still much life in mergers

EP: Angela, can you start by giving us an overview of the merger & acqusitions (M&A) situation in subSaharan Africa at present?

AS: According to our analysis of Refinitiv data for sub-Saharan Africa (SSA), inbound M&A transactions from foreign acquirers reached $17 2bn in 2021, with 313 transactions In 2022, this amount dropped to $12 7bn from 306 transactions So far in 2023, the SSA region was the target of 29 transactions, with a total value of $879m

So what we are seeing is the M&A market is down and conditions are challenging, but the market is not closed Dealmakers are planning their balance sheets and hunting for strategic deals, more is being deployed via equity funds, private credit availability and opportunities for well-positioned buyers either through taking advantage of distressed situations or through currency arbitrage There is still some uncertainty as to what the year has in store, but there is definitely still activity

EP: How does the situation in Africa compare to the global M&A environment?

AS: Globally, 2021 was a year of unprecedented M&A activity as dealmakers made up for time lost due to Covid19 restrictions and lockdowns In 2022, M&A deals were 38 8% lower than 2021 according to Merger Market

In 2022, deal volume dropped 40% between the first and second 2022 half-years due to rising interest rates, inflation, geopolitical conflict and economic uncertainty

For SSA, we believe while global geopolitical uncertainty will continue to have an impact on M&A transactions in Africa in 2023, transactions

LSR: Private markets in SSA have been boosted by plenty of dry powder, with private equity investors driving market activity in 2022 Although not as high as 2021, 2022 was still the second-highest year on record for private equity activity since 2007 The AVCA Private Capital Activity Report showed that the first half of 2022 was one of the strongest half-years for Africa’ s private capital industry, with 338 completed deals valued at $4 7bn This followed an upbeat 2021 for African private equity, a year of ample dry powder are still happening, and private capital investors are driving a lot of the deals

EP: On that note, Lydia, what happened in the private equity space in Africa over the last year?

Likewise, according to a report by S&P Global Market Intelligence, private equity and venture capital investments in Africa soared 66% year on year in 2022 to $7 7bn, the highest aggregate value in the past five years S&P pointed out that this big jump was due mainly to the proposed acquisition of hospital operator Mediclinic International, which is valued at more than $5bn In terms of transaction volume, private equity transactions have shown a steady climb since 2018, to 404 deals in 2022 (S&P data entries include whole company acquisitions by private equity, minority stakes, acquisitions of assets and fundraising, so pretty much all activities that private equity general partners and venture capital firms are involved in EP: Is this expected to continue?

LSR: Yes, our view is that, going forward, private equity transactions in Africa will continue to grow The Deal Leaders International report was optimistic about the M&A market in SSA saying that foreign direct investment would increase in the next few years, despite the global economic recession

EP: What do you think is causing the growth of pri- vate equity in Africa and are there any challenges to watch for?

LSR: I think that overall it is the confidence instilled in investors by private equity fund managers in Africa this means the continent is expected to remain a very strong investment opportunity for private investors This is despite the numerous crises of the past couple of years, especially in terms of the looming global recession and energy crisis, which is significant in SA, as you know, but also a global issue with energy prices soaring Postpandemic and after the impact of global economic turbulence, investors have also been thinking carefully which sectors will do well and where the pandemic has allowed for discounts on quality assets Across the world, including in Africa, general partners have had to address new risks and stabilise their investments In addition, sellers have been holding on to their assets, waiting for an increase in value Currency volatility in Africa has also been a challenge in recent years, and the devaluation of certain local currencies has affected the value of deals In addition, the recent rate hikes mean money is not cheap and this adds complexity and makes for more risk-averse investors