Continuing strength in mergers & acquisition

Merger & acquisition activity is currently at its highest 3 year level with reports issued in July, by information and analysis provider mergermarket, of the total deal value reaching $8.2bn in the first half of 2010. In comparison to the same time period last year, this proved to be more than double the deal value and was mainly as a result of two large deals, namely, Gold Reef Reports’ acquisition of Tsogo Sun Holdings ($2.7bn) and Momentum Group and Metropolitan Life’s merger ($2.4bn). The leisure sector made up the largest proportion of deal value activity with the Tsogo Sun Holdings deal and the financial services sector was the most active in deal volume with 19.5% of activity.

The World Cup, of course, raised South Africa’s focus worldwide and foreign investors seeking acquisitions and partnerships in South Africa and the rest of the African continent is set to gain momentum. Former British Prime Minister Gordon Brown recently stated that Africa could lead the world to a new economic growth and encouraged investors to turn to this continent with its huge potential and talent.

When one considers the position of the traditional and more developed markets internationally, where confidence continues to wane and major world economies are very much ‘touch and go’ as to whether they will fully recover from the recent dramatic financial crisis with its devastating effects, Africa’s progress is particularly impressive. Additionally, the talk north of the equator is dominated by austerity measures and civil unrest is becoming a daily occurrence in countries where it was almost previously unheard of. With this challenging environment it is perhaps not surprising that the mergers and acquisitions market is struggling to get back to where it was three years ago and levels of confidence amongst investment bankers in Europe and North America is at an all-time low.

Africa, therefore, is doing particularly well for itself and, as the world’s last emerging market, the opportunity to acquire assets at attractive valuations is a key factor. Many of these assets are in the Oil & Gas and Mining sectors and therefore attract the interest of nation states, not only private enterprise, given the need for countries to secure their energy production capability and mineral requirements for the years ahead. Additionally, the continent represents an enormous consumer economy which in many respects is underserved by the very most basic attributes of such an environment, from retail banking, communication, health care, transportation and infrastructure.

As the challenges of transacting in more developed markets remains, capital will naturally flow in the path of least resistance and to environments where it can be more efficiently deployed. Ironically, for a continent which was for many years largely considered too difficult to do business with, Africa is now seeing an explosion of interest that is set to continue. Many African nations have endeavoured to create significantly more business-friendly environments and engender confidence in the stability of government and the independence of the judiciary. While Africa might not reach China and India’s heights overnight, the compelling market dynamics and opportunities appear to instill confidence that there will very likely be a pot of gold at the end of the African rainbow.

An interesting factor which is underscored by the results shown in recent market survey data such as mergermarkets’ results, is the extent to which Africa is able to implement and facilitate this growth from within, and that the skills needed to excel in deal activity can be found right here. Foreign investors are realizing that to deploy the skills of M&A professionals in Africa makes sound business sense given the available skills and higher level of ‘local knowledge’. In mergermarkets’ league tables of Legal Advisors for Africa & Middle East M&A, four South African law firms ranked in the top ten according to volume of deals completed, with Edward Nathan Sonnenbergs coming second to Linklaters, one of the UK’s magic circle law firms.

All of this offers a potentially bright future for Africa, a burgeoning market being driven by the local skills and talents on offer, and it is with reason that we look ahead with optimism at the ongoing development and success of this fascinating and increasingly accessible continent.

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