2021 turned out to be a stellar year for mergers and acquisitions (M&A) in Africa, according to Herbert Smith Freehills’s Global M&A Outlook 2022.
The report noted that activity across Africa continued to build on the momentum from late 2020 and as the year progressed it became evident that 2021 would be a year for the record books, with deal value exceeding $85 billion (R1.3 trillion) and volume reaching nearly 1 000 deals.
The traditional deal-making sectors of energy and mining took a back seat to technology, media, and telecom (TMT), which topped the chart by value and was second by volume after financials. TMT accounted for more than 60 percent of deal values in 2021, due largely to the $44.1bn Naspers and Prosus share swap, and Thailand’s iWeb’s $3.7bn acquisition of Nigeria’s Tingo Mobile, which ranked as the top two deals of the year involving African targets.
Herbert Smith Freehills said beyond these mega-deals, African tech start-ups had had a notable part to play, having gained incredible momentum in recent years, growing six times faster than the global average.
In the energy and resources sectors, the data showed an upward trend in metals transactions driven by the energy transition and decarbonisation (in particular copper, cobalt and lithium assets).
In line with the energy transition, and the renewed focus on compliance issues, Herbert Smith Freehills said it had continued to see international oil and gas and mining companies conduct major asset disposals across the continent, to adjust their portfolios and reposition themselves in the market.
“This, taken in tandem with the wave of recent legislation aimed at fostering national participation, has led to local players having strong opportunities in competitive auction processes,” it noted
The report said at a regulatory level, the entry into force of the African Continental Free Trade Area on January, 1, 2021 was a significant milestone for the continent. While the majority of the provisions were not yet in force, it had the potential to create a continental market, helping to facilitate cross-jurisdiction investment and deal-making. Furthermore, a growing number of African countries had recently passed “Startup Acts, laws aimed at supporting innovation and market participation.
Huneiza Goolam, a partner, Herbert Smith Freehills, said yesterday: " One of the key M&A drivers in 2022 is Environmental, Social and Governance (ESG) factors. ESG considerations in M&A transactions are becoming more prolific owing to the need for companies and investors to pay attention to ESG issues not only because they – or the businesses they seek to acquire – could be in breach of hard law, but also because such issues may impact on their reputation or degrade their future performance".
Goolman said another pertinent driver of M&A activity globally and most likely in the region, related to shareholder activism influencing decisions.
“Closer to home, we have noticed greater scrutiny in terms of executive remuneration and shareholders voting down remuneration packages at annual general meetings. Other global trends include a surge in public M&A, de-spac transactions and the impact of foreign direct investment regimes on deals. While these trends have not been important drivers of M&A activity in South Africa, we do expect to see an upward trend in these developments in 2022.
Globally, Gavin Davies, the head of Global M&A at Herbert Smith Freehills said, “M&A in 2021 started strongly, and ended at record levels, across all the metrics.”
“Private capital focused on deploying record levels of dry powder, fuelled by buoyant debt markets, with FOMO (fear of missing out) on the once-in-a-lifetime opportunities thrown up by the pandemic,” he said, adding that corporates were determined to emerge as the winners not the losers from this historic moment.
Looking at M&A activity for this year, Davies said caution was needed.
“Variant concerns will continue to threaten expectations of a vaccine-led economic rebound. There has also been no cooling of geopolitical tensions, as acute as ever in China's relations with the West, and the UK's relationship with Europe, as well as other conflicts around the world,” he said, saying that more business failures were anticipated, particularly when the end of government support measures were fully felt.
"Yet the long-term theme of accelerated business transformation that is driving so much M&A – most clearly in digital transformation, decarbonisation of the energy sector, and the central place ESG (environmental, governence and social) is assuming in global investment – is not going out of fashion anytime soon. But for now, M&A is still partying hard to the music of this global tune and shows no intention of heading back into lockdown just yet.“