Deal making in Africa’s biggest economy will stage a comeback in 2018 and 2019, according to Chicago-based multinational law firm, Baker McKenzie, as curtains draw on a period of policy uncertainty which saw Mergers and Acquisitions (M&A) shrink since 2016.
Mergers and acquisitions is a general term that refers to the consolidation of companies or assets.
M&A transactions in Nigeria were valued at US$ 1.2 billion in 2016, according to data compiled by McKenzie, and the latter forecasts a 67.8 percent decline to US$ 716.4 million in 2017.
Nigeria is however tipped to pick up the pieces of a disappointing outing this year, with a 455 percent increase in M & A deals to USD$3.977 billion in 2018, before declining marginally by 1.5 percent to US$3.936 billion in 2019.
There were 28 M&A transactions in 2016 and 28 are predicted again in 2017, 35 deals are expected in 2018, rising to 40 in 2019, according to data compiled by McKenzie.
Wildu du Plessis, head of Africa at Baker McKenzie, attributes the expected uptick in deals in the two years after 2017, to improved oil production and foreign exchange liquidity.
“We note that in Nigeria, policy and economic uncertainties, had contributed to stalled deal making in 2017,” du Plessis said in a Nov. 16 note to BusinessDay.
“The uncertainties include a lack of access to foreign exchange, blockages to the government budget process, and low oil production that had constrained GDP growth.
“As these conditions ease in the final months of 2017 and into 2018, a rebound in M&A to around US$4 billion in both 2018 and 2019 is forecasted,” said du Plessis.
The plunge in oil prices and reduced production inflicted by militant attacks on export terminals in the Niger-delta, contributed to tipping Nigeria into its first economic recession last year, the first such slump since 1991.
Because oil revenue accounts for more than 80 percent of government’s foreign exchange revenue, less petrodollars led to acute dollar shortages that were worsened by capital controls from the Central Bank and discouraged in bound and out bound M&A activity.
However, Nigeria has since exited recession after expanding 0.55 percent in the second quarter of this year and a new window where the naira trades at a market rate has boosted dollar liquidity.
In a signal of investors’ approval of the new window, called the Investors’ and Exporters’ window, some $18.58 billion worth of transactions have been made on the window since inception in April 2017, according to data provided by trading platform, FMDQ.
“Based on the capital requirements in some key sectors of the economy, I would expect that sectors most likely to see increased M& A activity are the Oil and Gas sector, Banking, Insurance, Fast Moving Consumer Goods and even the power sector,” said Tajudeen Ibrahim, head of research at investment bank, Chapel Hill Denham.
According to data compiled by BusinessDay, some major M&A transactions that occurred this year include the acquisition of ExxonMobil Oil Corporation’s stake in Mobil Nigeria by NIPCO Investments Limited (NIPCO), in a deal worth N90 billion, one of the biggest in the downstream sector in recent years.
Allianz Group, one of the world’s leading insurers and asset managers with more than 86 million retail and corporate customers in August acquired 98 percent of Nigerian insurer, Ensure Insurance Plc from its core shareholder Greenoaks Global Holdings Ltd.
Dangote Noodles Limited, a unit of Nigerian company Dangote Flour Mills, also sold two production lines to rival pasta maker De United Foods Industries for 3.75 billion naira ($12.26 million) this month, the company said on Tuesday.
The naira closed at N359 per US dollar Thursday at the I&E window, according to data provided by trading platform, FMDQ.
Meanwhile oil exports have also inched up, following the conclusion of repairs to damaged oil pipelines.
Africa’s largest oil producer pumped some 1.861 million barrels of crude oil per day in August, according to most recent data from OPEC. That’s 8 percent higher than it pumped in July and 20 percent higher than the 1.557 million barrels daily pumped in 2016.
“M&A activity in specific sectors may be spurred by legal and regulatory policies targeting struggling businesses in certain sectors,” according to Folake Elias-Adebowale, partner and head of private equity and oil and gas teams at Lagos-based law firm, Udo Udoma and Belo Osagie.