African economies batten down the hatches as COVID-19 hits, but medium-term forecast looks brighter

African economies batten down the hatches as COVID-19 hits, but medium-term forecast looks brighter

Mergers and acquisitions (M&A) have decreased across Africa in the first half of 2020 in terms of both volume and value, with some exceptions in Nigeria. Going forward, dark clouds remain over the M&A market in Africa in the short-term, with economic uncertainty likely to cause a reduction in foreign investment. However, recent developments regarding Africa’s policies on trade and investment, and its renewed partnerships with major global economies, brighten the continent’s prospects for medium-term recovery.

South Africa

The value of M&A transactions in South Africa dropped 60% to USD 3.3 billion in the first half of 2020, down from USD 8.2 billion for the same period last year (H1 2019). This is according to Baker McKenzie’s analysis of Refinitiv data, which lists completed and pending deals. The volume of M&A deals in South Africa fell by 18% year-on-year, with 132 transactions recorded in H1 2020, down from 160 in H1 2019.

Domestic M&A activity in South Africa dropped 18% to 64 transactions, down from 78 in H1 2019. Domestic deals were valued at USD 1.7 billion in H1 2020, down 71% year-on-year. Cross border transactions reflected the same downwards trend, with M&A volume down 17% to 68 deals, and deals valued at USD 1.5 billion in the first half of 2020 down 32% from the same period last year.

Barloworld’s acquisition of the equity assets of both Wagner Asia Group and SGMS LLC by its Mongolian subsidiary, for USD 212 million each, were the biggest cross-border transactions in South Africa in the first half of this year.

The impact of COVID-19 is now being felt across the African M&A market, with numerous deals in the pipeline delayed or cancelled in the first half of the year. In certain sectors, such as in the airline and tourism industries, COVID-19 has caused a re-think/ pause /extraction from footprint expansion via M&A. In general, the dealmaking space has been impacted by the sentiment that "life will never be the same." A lot of dealmakers are thinking carefully about which businesses and sectors will be winners and which will be losers, and where the pandemic has created opportunity to acquire quality assets at a discount. It would appear as if VUCA (Volatility, Uncertainty, Complexity and Ambiguity) is becoming the new normal in the M&A space, requiring a smart and collaborative effort to get the deal over the line – especially in terms of cross border […]

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