Authors: Frédéric Bouvet, Rudolph du Plessis and Siddhartha Shukla

Following a period of recent change for the worse in M&A (and PE exits) activity, due to political uncertainty and governance issues, can local strategy – combined with Africanising operations – and positive business sentiment improve the current state of affairs?

African M&A has seen significant changes in the past decade. While from 2013 to 2016, deals by value averaged $40bn (£31bn) annually, in 2018 they plummeted, recording the worst year for M&A since 2009. The downturn in African M&A in 2017/18 has been attributed to factors including political uncertainty, currency fluctuation, poor governance frameworks, bribery concerns and increasing fiscal deficits.

But some factors have changed in recent months. Here is a snapshot of key regional drivers likely to re-energise M&A:

  • South: South Africa, which led Africa’s previous growth and whose Johannesburg Stock Exchange houses companies constituting over 80 per cent of total market capitalisation across all African stock exchanges, has recently endured challenging years but promises to turn around with president Cyril Ramaphosa’s initiatives and business-friendly engagement.
  • West: With the Nigerian election concluded and with renewed international interest in historically popular sectors for Africa and Nigeria, coupled with the end of the currency devaluation, positive policy steps are expected.
  • East: Kenya’s economy has suffered in part with its political system undergoing structural changes. With GDP expected to be 5.8 to 6 per cent over 2019/20 and with recovery in business sentiment and ease of political uncertainty, there is positive news.

Private equity exits

Private equity (PE) investments, and in particular exits, are often seen as important indicators of investor confidence. From 2013-2018, total PE deals in Africa stood at $20bn. More than half (by value) were in West Africa ($10bn) and the largest number (by volume) were in South Africa (294 deals). However, the past two years have not been favourable for Africa on the PE front. Big PE houses, such as Blackstone and KKR, have withdrawn from or reduced their presence in Africa. These seem to have been driven by lower exit multiples (ranging from a modest 6x to 8x), competition from China, and the inability to find large deals.

Local partners

In the past decade, African M&A has seen a common theme of local partner involvement. It is well-known that navigating through the African topography for an international investor without credible local partners can be difficult. Selecting the right local partner and identifying a clear relationship framework in the early stages is crucial.

Government intervention

Lack of clarity regarding government approvals/processes, or evolving regulatory regimes, is common to most transactions and across a large number of the 54 African countries. These have to be carefully considered in respect of the deal timetable and tactical considerations. Government intervention is also not unusual where the laws are unclear and transactions are of a significant nature. Providing local business leads with thorough briefings in advance of any approach to government authorities is important.

Recent strategic considerations

With the tightening of bribery and corruption laws in the UK and the US, compliance issues in Africa have become central to M&A decisions. Understanding the local market is crucial for success, so ‘Africanising’ international operations should be considered early in an M&A process.

Practical considerations

The continent is split between Anglophone and Francophone jurisdictions, where laws are being harmonised and modernised and it is important to refresh analysis rather than rely on previous transactions. M&A transactions, in particular relating to the key jurisdictions, have become more sophisticated and attuned to international practices. Given Africa’s diversity, the choice of local counsel may be limited and so selection should be considered early. Firms should also consider risks and impact of leaks, together with interaction with key government authorities ahead of announcements.

Sectors/areas to watch

The sectors to watch include energy/oil and gas, telecoms and consumer. We also expect an increase in impact investment in sectors including education, healthcare, agriculture and real estate (including affordable housing).

(First published in The Lawyer on 29 April 2019)


For more information, please contact Frédéric Bouvet, Rudolph du Plessis and Siddhartha Shukla or your usual Herbert Smith Freehills contact.

Frédéric Bouvet
Frédéric Bouvet
Managing Partner, Paris
+33 15 357 7076
Rudolph du Plessis
Rudolph du Plessis
Partner, Johannesburg
+10 500 2623
Siddhartha Shukla
Siddhartha Shukla
Senior Associate, London
+44 20 7466 7474