Capital Markets

Corporate deals decline amid Covid uncertainty

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Guests during the release of a company's half-year financial results at a Nairobi hotel on August 15, 2018. FILE PHOTO | NMG

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Summary

  • The number of corporate deals in East Africa fell by 14 percent in the first seven months of the year compared to the corresponding period in 2020.
  • A report done by investment advisors I&M Burbidge Capital shows that deals fell to 60 in the period from 70 last year.

The number of corporate deals in East Africa fell by 14 percent in the first seven months of the year compared to the corresponding period in 2020, with uncertainty over Covid vaccination and new strains forcing investors to hold on to sizeable amounts of investable capital.

A report done by investment advisors I&M Burbidge Capital shows that deals fell to 60 in the period from 70 last year, marked by a fall in private equity, mergers and acquisition (M&A) deals.

The disclosed value of the deals in the year-to-date has also fallen significantly to Sh45.7 billion ($416 million) from Sh93.7 billion ($853 million) last year, although this is largely due to the fact that none of the merger and acquisition deals has had its value disclosed.

Many would-be investors have been adopting a wait-and-see attitude towards new commitments since the Covid pandemic hit the region from March 2020, aware that the economy has been hit hard and consumer spending power that sustains businesses has been compromised.

“We maintain a cautious optimism for the deal environment in the region as informed by the general business environment. However, the slow progress of vaccination efforts as well as the increasing spread of the Delta variant of the coronavirus presents significant challenges and poses risks to the continuing relaxation of restrictions,” said I&M Burbidge in the July 2021 East Africa Financial review report.

“We note that financial investors in particular, maintain a significant amount of dry powder, most of which is sourced from developmental sources and as such, has deployment targets. It will be interesting to see how investors navigate the current environment to clinch high quality assets.”

This year, there have been a total of 25 private equity and Development Finance Institution (DFI) deals in the region, down from 41 last year.

M&A deals have fallen from 21 to 11, although the shortfall in these two categories has been filled by the 17 venture capital deals which have been realised this year.

In terms of geographical spread, Kenya continued to account for the bulk of deals, hosting 38 out of the 60 done so far this year.