Africa’s deal-making catalysts in 2024

Mergers and Acquisitions (M&A) activity is a key indicator of economic health, and we believe that the M&A climate in Africa could be influenced by five major mega-trends in the coming years.

The first of these mega-trends is the increasingly important role that technology, including Generative Artificial Intelligence and digital transformation, will play. Supported by rapidly accelerating smartphone penetration, these new tools will facilitate a faster exchange of ideas and business opportunities.

This segues into the second trend, which is known as “Generation Alpha” – people born after 2010 – and speaks to the fact that Africa has a young population and a growing middle-class. For organisations looking for growth markets, the African continent will largely fuel the global population growth in the coming decades, representing a huge opportunity for corporate development.

The rise of the green economy and the just energy transition is a third driver of transactions. There is currently a US$214 billion annual investment gap to meet Africa’s climate funding needs, and this will provide a range of opportunities for energy infrastructure from solar, wind, hydrogen and gas.

The fourth trend is geopolitics, as the world shifts from a Western-dominated economy to one where the likes of China and India play increasingly more important roles in the global political and economic spheres. Blessed with natural resources, Africa has been a focal point for countries looking for access to key minerals – including those involved in the fields of electric vehicles and battery storage businesses.

Further, we can expect the relocalisation trend to continue to gather pace as global supply chains are adapted to meet the demand for these new industries and trade routes.

On top of this, Africa has also sought to take its destiny into its own hands through the conclusion of a variety of trade deals, including the African Continental Free Trade Area (AfCFTA), which aims to stimulate regional trade. By shifting from an extractive economy, to one which focuses on value-adding activities, we can expect to see sectors like pharmaceuticals and agri-processing attract investment.

The fifth trend is the rise of public-private partnerships (PPPs) on the back of a rapidly evolving global debt environment, which has been influenced by elevated interest rates and inflation. African countries are struggling to pursue their investment agenda and deal with their public debt. These countries are now exploring PPPs for funding infrastructure initiatives. Examples of these include railway projects connecting East Africa and the development of ports in East and Southern Africa.

To better understand the level of M&A activity, one of the exciting new innovations introduced by Boston Consulting Group (BCG) is the M&A Sentiment Index* which provides a valuable snapshot into deal activity across the globe.

The M&A Sentiment Index provides a monthly update on dealmakers’ willingness to engage in mergers, acquisitions and divestitures over roughly the next six months. Based on current data, it indicates a mixed outlook for dealmaking activity through the end of 2024. The current index value of 78 is below the ten year average of 100, but the market has recovered significantly from the low point of 62 in November 2023.

North America remains the centre of attention for dealmaking activity with 61% of transactions, while Europe has reported a healthy 23% increase, compared with the first 6 months of 2023; the UK, Sweden, Spain and the Czech Republic are all enjoying a robust 2024.

While the African market has faced numerous challenges, there are signs that activity is starting to pick up again, with some large transactions capturing the imagination and signifying a shift in confidence.

In South Africa, Canal+ France SA has made a $2,6 billion bid for broadcast operator MultiChoice, while Nigeria has seen Renaissance invest in the Shell Petroleum Development assets in a deal worth $2,4 billion.

While smaller in scale, other interesting deals include the Carlyle Group bidding for the Energean Egyptian portfolio, the Saham Group investing in the Société Générale Marocaine de Banques SA business in Morocco, and Hennessy Capital investing in Namib Minerals.

As investment confidence returns, this is resulting in further commitments to exploration activity, which may unlock more transaction opportunities.

The recent $49 billion bid from BHP for Anglo American highlights that there is appetite for big deals, and the provision for Anglo American to divest from its South African assets was an interesting element to the transaction.

The recovery in valuations is bringing buyers and sellers closer together. Large transactions, such as the MultiChoice deal and the BHP bid for Anglo, showcase that executives are getting around the table and discussing opportunities. For bourse operators such as the JSE – the most advanced of the stock markets in Africa – this is encouraging, as they have a number of businesses trading on un-demanding price to earnings multiples. There are numerous world-class assets across a variety of sectors, including financial services, telecommunications and resources which are all trading at discounts to their developed market peers, but these assets will attract investor interest as confidence returns.

Despite the risks and opportunities in a fast-changing environment, we believe that the aforementioned factors, combined with a more favourable interest rate environment and growing business confidence, could drive increased investor interest in the African continent.

*https://www.bcg.com/collections/publications/m-and-a-sentiment-index

El Fihri is Managing Director and Partner | Boston Consulting Group, Casablanca

This article first appeared in DealMakers AFRICA, the continent’s quarterly M&A publication.

DealMakers AFRICA is a quarterly M&A publication
www.dealmakersafrica.com