Mergers and acquisition deals in Africa double

Merger and acquisition (M&A) activity in Africa doubled in the first three months of the year as a resumption of capital inflows into the continent sought out high yielding investments.

Driven by a rebounding global economy and higher risk appetite among investors in the world’s financial capitals, Africa is once again on the spot light as a key destination for firms seeking exposure to the continent’s bubbling growth.

Data from ThomsonReuters indicates that M&A activity in the region increased from 3.5 per cent to 6.6 per cent with commodity, financial services, telecommunications and power companies leading the preferred targets for global companies.

Although still considered the back water region for global M&A activity, Africa’s vibrant commodity based economies are attracting investors with the largest names in global finance positioning themselves for the surge in capital flows.

“There are a lot of capital flows from non traditional sources and we’re extremely bullish about Africa,” said Patrick Mweheire, chief executive officer at Renaissance Capital.

South African firms primarily in mining and financial services have led the pack in M&A activity on the back of a sharp rise in commodity markets during the early stages of the recovery.

Africa is becoming increasingly spoilt for choice regarding potential international government investors as Western powers scramble to counter the effect from Asian economies is having throughout the continent.

The biggest deal announced so far in the continent remains India’s Bharti Airtel’s $10 billion bid for mobile telephony company Zain Africa’s assets.

If managed well, the benefit for Africa in having more international suitors will be significant.

Kenya’s presence in Africa’s M&A space so far has been from Kenol Kobil’s 10.50 per cent additional acquisition in Zambian lubricants manufacturer Lublend Ltd and I&M Bank’s complete buyout of Tanzanian bank CF Union Bank.

TransCentury Ltd’s plans to raise its interest to 55 per cent from 20 per cent, by acquiring a 35 per cent stake, in Rift Valley Railways, a provider of rail transportation services, from Sheltam Ltd failed to go through.

Instead, Citadel Capital an Egyptian private equity firm acquired a 49 per cent stake in Sheltam Railways Company, a key shareholder in Rift Valley Railways.

According to economic observers, the global economy appears to have made it out of the recession. The scramble in Africa has not only been about the acquisition of raw materials, but access to markets.

Africa is in many ways the final frontier for global investment.

These developments have meant that firms with global aspirations are being forced to incorporate Africa into their long-term plans.

“We expect the recovery that began in the middle of last year to continue into 2010,” said analysts at AIG Investments.

Stronger growth

The global economy is rebounding, supported by substantial policy stimulus by governments and growth in emerging economies expected to outpace that of developed nations.

In the case of the United States, Europe and Japan, analysts at AIG say there is likely to be a modest, but gradual recovery in economic output.

Stronger growth within emerging market economies as a whole is however expected to surpass that in more developed economies.

A January 2010 update of the World Economic Outlook put gross domestic product growth for emerging markets at an average of six per cent with China’s and India’s expected to grow at over 10 per cent and eight per cent respectively.

There are still enough reasons to remain nervously bullish about current market trends.

With the expected low interest rate environment, plentiful liquidity, recovery in company earnings and a continued improvement in financial market conditions.