Markets & Finance

Mergers and acquisitions in East Africa on the rise as firms seek capital, expansion

East Africa’s mergers and acquisitions market has started picking up as companies look for ways to protect their market share and ensure better returns for shareholders. Most of the M&A deals are in the financial, telecommunications, industrial and health sectors.

Analysts say the region’s changing economic fortunes over the past two years have seen struggling companies look for partners in a bid to raise new capital, create synergies and build economies of scale to tackle increasing competition.

The emerging trend has seen deal makers flock to the region to get a slice of the growing business, with an increased number of foreign corporates making major bids over the past 18 months.

According to the UK’s weekly The Lawyer, 95 acquisitions have taken place in Kenya, Tanzania or Uganda since last year.

“The trend is likely to continue, especially because most of the big companies around the world have grown that way,” said Paul Mwai, chief executive of AIB Capital Ltd, adding, “M&A is an effective growth strategy for most companies.”

According to Daniel Kuyoh, a senior investment analyst at Alpha Africa asset managers, stiff competition and a difficult operating environment have forced struggling companies to look for M&A deals to ensure they don’t close shop.

“Over the past one or two years, the valuations of most companies have become more attractive to investors,” said Mr Kuyoh.

Investor appetite on the rise

A study by Mergermarket Group, a UK-based media firm that specialises in corporate and financial news analysis, predicted that deal making on the continent would improve in 2015 due to increased interest from foreign investors and African companies expanding their territories.

The report, titled Deal Drivers Africa: A comprehensive review of African M&A (2014) singled out good valuations of African assets as one of the key factors likely to impact positively on the M&A landscape.

According to the report, private equity activity remains a small part of the continent’s M&A story, but investor appetite for African assets is gradually increasing.

Private equity buyouts are expected to increase as companies look to divest in order to gather additional capital to finance larger deals.

Corporate deals

Kenya has witnessed a number of corporate deals in the financial, telecom and dairy industry.

Last week, Kenya’s Plum Holdings — a company associated with the chairman of Equity Bank Peter Munga — announced it would acquire an additional 23.34 per cent shares in regional insurer Britam Holdings Ltd.

The purchase of 452.5 million additional shares brings Plum Holdings’ shareholding in Britam to 38.54 per cent (747.06 million shares).

READ: Equity Bank chairman's firm seeks 23pc more stake in Britam

Listed Kenyan publishing firm Longhorn Ltd also announced it has made a bid to acquire Law Africa Publishing Ltd. In a cautionary statement dated June 13, the firm said it would be acquiring 74 per cent of the issued share capital of Law Africa Publishing Ltd for an undisclosed price subject to both shareholder and regulatory approvals.

READ: Longhorn set to acquire 74pc stake in Law Africa Publishing

Last month, Bank M of Tanzania acquired a 51 per cent controlling stake in Kenya’s Oriental Commercial Bank at an estimated price of Ksh1.26 billion ($12.23 million).

Last year, Kenya’s I&M Bank agreed to take over Giro Commercial Bank Ltd through a combination of cash and share swap in the ratio of 50:50 while Equity Bank acquired ProCredit Bank of the Democratic Republic of Congo.

READ: I&M Bank to take over Giro Bank for $54m

ALSO READ: Equity to cede 2.3pc stake in Congolese bank acquisition bid

Kenya’s Jamii Bora Bank is currently looking for a merger with another local bank to shore up its finances.

Barclays Africa Group acquired Kenya’s First Assurance for an estimated $29 million.

British private equity firm Helios Investment Partners acquired a 60 per cent stake in Telkom Kenya. The shares were previously owned by France Telecom, currently trading as Orange SA, which is exiting the Kenyan telecom market.

READ: UK’s Helios now takes over Telkom Kenya

Read the rest of the article in The EastAfrican.