Opinion and Analysis

Boom for EA mergers and acquisitions

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By Sheel Gill

Posted  Tuesday, April 2  2013 at  18:47

After 17 years of handling Corporate Finance and Transactions in Germany and the UK, a return home is timely what with the immense growth prospects this region has to offer. 

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In the short time I have been here, I have noticed the positive impact the vast improvements in infrastructure has had on businesses — exponential growth.

Companies in Kenya have the ability to implement change rapidly. Growth brings with it many challenges; first, management has to find innovative ways to increase shareholder value as competition gets fierce.

This is the main reason for having mergers and acquisitions (M&A) as well as financing on the company’s strategy and board agenda. Growing companies have the advantage of making M&A as a way of life.

I expect to see a boom in M&A, transactions and funding projects in the near future. Take the banking sector as an example. We have 46 banks in Kenya, 67 per cent of which are in the category of small, all competing for increasing business. For such banks to grow and increase shareholder value, there will be need for a series of consolidations across the sector. 

We have already seen the beginning of this with the announcement of I&M and City Trust. Such mergers bring with them challenges that can distract management from the day to day business resulting in a reduction of value. 

According to a global survey conducted by KPMG, 32 per cent of corporate buyers have seen a reduction in value largely due to exclusion of synergies when valuing and lack of a comprehensive post-merger integration plan.

The recent approval of the PPP law will attract foreign investors who have not previously been involved with infrastructure projects in our region. The PPP Bill 2012 provides a clear framework and process providing foreign investors a level of comfort in which they like to operate.

For example, as county governments begin to implement an infrastructure improvement plan, I envisage that people, the Government, and service providers will benefit from the PPP Bill.

Such reforms support the forecast growth in Foreign Direct Investment (FDI) to Kenya by 65 per cent over the next four years. This has the advantage of attracting the world’s best know how across all sectors. 

Once giant global PE houses begin to see returns and the vast opportunities for investments here, our local businesses will begin to realise their investments and reap the rewards. PE houses are yet to consider opportunities in the agricultural, horticultural and forestry sectors, the sectors that contribute to 21 per cent of our GDP.

The FDI will come in many forms — mezzanine loans, venture capital funds, Islamic finance, retail bonds, to name a few — hence knowing what is the most suitable form of funding for a business is a challenge.

Finally, we have an enormous opportunity at our doorstep — a forecast GDP growth of 5.2 per cent, talented people, depth and breadth of resources (ranging from funding to natural resources) and with it a slowdown across the developed economies.

Couple this with our advantageous position of being able to select the best of the best from the rest of the world — and I can only think BIG.

Gill is a director at KPMG East Africa’s Transaction and Restructuring Services.