PE & Fundraising
Global M&A trend shows up in Nigeria activity
Nigeria is not getting left behind in a global tide that has seen Mergers and Acquisitions (M & A) rise to an eleven-year high of $US1.7 trillion in 2018.
Mergers and acquisitions is a general term that refers to the consolidation of companies or assets.
Nigeria recorded some $225 million (N68.9 billion) in M&A deals between January and April 2018, the best start to a year since 2008, when BusinessDay started tracking deal data.
The average deal value in the four month period through 2008 and 2017 was $215 million (N65.8 billion).
The latest deal involved the N775 million paid by DE United Foods Industries Limited (DUFIL), owners of Indomie noodles, in April, to May & Baker Nigeria, for the 100 percent acquisition of its food production line which covers its noodles business- Mimee Noodles.
There is however a feeling among investors that deal activity could be higher with the right government reforms.
Financial and legal advisers said the rising activity in the Nigeria M & A space, after a dull 2016 and 2017, was due to improved dollar liquidity and the country’s exit from economic recession. They say the trend is likely to continue.
“We have observed a surge in private equity firms looking to acquire Nigerian assets,” said Adekunle Adebiyi, the vice president at Lagos-based financial advisory firm, MBO capital.
“Improved dollar liquidity and the country’s economic recovery are encouraging global investors and that is powering the rapid growth we are seeing,” Adebiyi told BusinessDay.
“The impending 2019 elections has also got private equity investors scrambling to close deals as early as possible,” Adebiyi added.
Some of the major deals this year include the N21.45 billion or 26.8 per cent acquisition of soft drink bottling company, Seven-Up, by majority shareholder, Affelka SA.
Another is the $35 million (N12.6 billion) acquisition of e-commerce firm, Konga by Zinox on February 2. Konga struggled since an 81 per cent slide in the naira saw its initial valuation of $USD200 million take a haircut.
Deal making in Africa’s biggest economy will stage a comeback in 2018 and 2019, according to Chicago-based multinational law firm, Baker McKenzie, as curtains draw on a period of policy uncertainty which saw Mergers and Acquisitions (M&A) shrink since 2016.
M&A transactions in Nigeria were valued at US$ 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.
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 told BusinessDay.
“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.
Brent oil currently sits at a four-year high of $76 per barrel, and US President Donald Trump’s decision Tuesday to withdraw from the Iran Nuclear deal bodes well for a further surge in oil prices.
“With our expectation of US government failing to recertify the deal in mind, we expect price to trade within $72 to $80 range during the week,”Ecobank Energy report released on May 7.
“Any time oil prices go up, investor sentiments about Nigeria gets a boost and that will translate to increased M & A activity,” said Egie Akpata, a director at Union Capital markets.
“Currency stability will also play a crucial role in driving increased activity,” Akpata added.
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 April, according to most recent data from OPEC. That’s 20 percent higher than the 1.557 million barrels daily pumped in 2016.
Off the back of acute dollar shortages that sent the naira spiralling to an all-time low of $520 per dollar at the black market last year, the embattled currency has stabilised since the central bank created a market-driven window (I&E) in April 2017 and oil prices and production recovered.
The naira has traded fairly stable at N360 per dollar at the I&E window since its April introduction. At Tuesday’s trading then naira exchanged for N360.64 per US dollar according to FMDQ data. It exchanged for N361 per dollar at the black market.
Improved currency stability partly contributed to the country’s exit from recession in the second quarter of 2017, with the IMF projecting growth of 2 percent this year on the back of a 0.8 percent growth in 2017.
In a signal of investors’ approval of the new window, called the Investors’ and Exporters’ window, close to $40 billion worth of transactions have been made on the window since inception in April 2017, according to data provided by trading platform, FMDQ.
Other Nigeria deals this year include the $25 million (N9 billion) acquisition of Nigerian medical diagnostics business, Echo Scan by London-listed Integrated Diagnostics Holdings (IDH) which created a joint venture with Man Capital, the investment arm of the billionaire Mansour family.
IDH and Man Capital partnered with the World Bank’s International Finance Corporation to invest in Echo-Scan, which is one of the biggest medical diagnostics players in sub-Saharan Africa. The deal was announced January 23.
In 2018, Atlas Mara was also involved in a deal worth N6.6 billion for the acquisition of a 3.5 per cent stake in Union bank onJanuary 15.
The transaction increased Atlas Mara’s stake in the lender to 48 per cent worth N91.4 billion. Union bank has a market cap of N190.498 billion.
Rensource, a Lagos-based distributed energy provider also secured N1.2 billion ($3.5 million) in bridge financing to grow its power-as-a-service renewable energy business by expanding across Nigeria this year.
The round was led by Amaya Capital Partners; however, 0ther key investors included the Omidyar Network and CRE Venture Capital. The deal was announced January 31.
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