By JOINT REPORT The EastAfrican
In Summary
- An analysis by The EastAfrican based on publicly announced deals since the beginning of the year shows that Kenyan and South African firms were involved in at least half of the deals done in the region, underscoring the importance of the two countries as key sources of investments.
- Kenya recorded the highest number of deals as well as the highest value of transactions, followed by Tanzania, Uganda and Rwanda respectively.
Kenyan and South African companies were the key
originators of mergers and acquisitions deals in the region, new data
shows, as the value and size of transactions hit new highs for the first
eight months of 2013.
An analysis by The EastAfrican based on
publicly announced deals since the beginning of the year shows that
Kenyan and South African firms were involved in at least half of the
deals done in the region, underscoring the importance of the two
countries as key sources of investments.
Dealmakers expect activity in the M&A field to
heighten in the last quarter of 2013 that starts next month, riding on
business confidence, consumer demand and improving economic conditions
in the region.
Firms in the technology, mining and financial services sectors are tipped to be the biggest drivers of M&As.
In the first eight months, IT, pharmaceutical and
mining companies attracted the highest capital inflows as investors
trooped into the three sectors. Kenya recorded the highest number of
deals as well as the highest value of transactions, followed by
Tanzania, Uganda and Rwanda respectively.
On Monday, Duba-based Al-Futtaim Group announced that it intends to make a bid for CMC Holdings,
the Nairobi Securities Exchange-listed car dealer, valuing the company
at $86.67 million. Of the 30 deals made public across the region, Kenya
had 12. The increasing M&A activity is providing a lucrative income
stream for transaction advisors like investment bankers and lawyers who
are raking in millions of dollars in fees.
Out of the 12 mergers and acquisitions in Kenya that were tracked by The Eastafrican, South African companies were a party in over half.
Dimension Data has offered to buy NSE-listed
Access Kenya for Ksh3.05 billion ($36.4 million). Financial services
group Alexander Forbes sold its Kenya health insurance brokerage arm
Alexander Forbes Healthcare Kenya to JSE-listed Afrocentric Investment
Corporation trading for an undisclosed fee.
The JSE-listed financial company Sanlam increased
its stake in Pan African Insurance. South African wine maker Distell is
expected to conclude the purchase of a stake in Kenya Wine Agencies Ltd
(Kwal).
The Kenyan unit of JSE-listed financial firm Old Mutual acquired a controlling stake in Kenyan microfinance lender Faulu Bank.
In Tanzania, Kenya-based Pan Africa Power
Solutions through its Tanzania subsidiary acquired Independent Power
Tanzania Ltd (IPTL) at an undisclosed fee. UAP Group acquired a 60 per
cent stake in Tanzania’s Century Insurance Company.
Tanzania’s Fair Competition Commission (FCC) has
also approved the acquisitions of Tanzania Hair Industries Ltd by Hair
Industry and Weave IP Holdings Mauritius Pvt Ltd. Citron Communications
Management Co. Llc and Rural Net Co Ltd as well as Datatec Ltd and
Comztek Holdings have notified the authority of their impending mergers
and are awaiting the agency’s approval.
The number and size of deals in Tanzania is likely
to be higher in coming months since, unlike Kenya where most deals have
been made public due to one party being a listed company, some of the
deals could have involved private companies.
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Again, the FCC has not made public the number of deals that it has approved since March this year.
In Uganda, Kenyan companies were represented in
half of the four deals tracked by this paper. The Kenyan private equity
firm Fusion Capital acquired a stake in Mukono Printing and Publishing
Company, one of Uganda’s oldest publishing houses. Gelp Service Stations
Ltd, owned by Ugandan businessman Godfrey Kirumira, acquired the Uganda
operations of Kenyan retailer Tuskys.
In Rwanda, Kenyan companies acquired a stake in
two Rwandan firms. The Kenya-based investment fund Fanisi Capital
invested $3 million in pharmaceutical wholesaler Sophar Ltd as well as
another $3 million in ProDevelopment. The investment was through debt
and equity. Private equity firm Fusion Capital paid $2 million for a
46.5 per cent stake in Rusororo Aggregate Ltd, a Rwandese quarry, at
roughly $4.3 million.
Mauritius firm Liquid Telecom bought the assets of
the defunct Rwandatel after it was declared bankrupt in 2011, as part
of plans to extend its fibre-optic network across Africa.
According to Robert Mathu, the executive director
of the Rwanda Capital Markets Authority, the relatively few deals in the
country are due to inactive market intermediaries.
Companies dealing in fast moving consumer goods
feature prominently on the list, driven by a desire among investors to
position themselves in sectors that allow them to benefit from the
growing spending power of the region’s middle class.
“Consumer-based sectors are big time. They are
recording much more business activity. There is a lot of consumption,
people have more disposable income and they are spending money,” said
Ayisi Makatiani , the managing partner and CEO of Fanisi Capital Ltd.
There is also a marked interest in companies in
the IT sector, a factor that experts say is due to the low broadband
usage in the region. Liquid Telecom purchased Rwandatel, while Data
Dimension has offered to purchase Access Kenya in a deal that has
received shareholder approval. In January, Liquid Telcom announced it
had purchased 61 per cent of Kenya Data Network (KDN) from the Altech
Group.
Broadband usage in the region is still low partly due to the fact that 90 per cent of Internet access is through mobile phones.
However, in the three months to March this year,
the total international bandwidth used by Kenya jumped 72 per cent —from
535,000Mbps to 921,000Mbps — reflecting the growing data usage in the
country. Companies in the pharmaceutical industry are also attracting
special attention among dealmakers.
Fanisi invested in the pharmacy retail chain
Halton, while in Uganda Saudi Arabia-based PE firm Abraaj Group bought a
stake in Vine Pharmaceuticals Ltd, a fast growing Ugandan drug
retailer.
With Africa seen as the last growth frontier,
analysts expect the average size of future deals to rise in tandem with
economic growth.
The growth will help Africa claim a bigger share of the M&A market.
The African Development Bank (AfDB) estimates that the continent accounts for only 3 per cent of global M&A deals.
“Energy, mining and utilities sectors are expected to remain the
main catalysts of takeovers in the continent. In addition, Africa’s
market is expected to benefit from the growing interest among companies
from emerging partners in the continent’s potential,” said AfDB.
Industry observers anticipate more corporate bond
transactions in the last quarter of 2013 but are also counting on a
stream of deals flowing from the real estate sector as some private
equity investors cash in on falling property values.
“I expect more deals to be concluded in the real
estate sector before the end of this year due to falling values of
several prime properties. Compared with last year, the market has fared
less impressively because of widespread uncertainty on key policy
matters like foreign borrowing and commercial oil production,” said Abu
Mayanja, a financial analyst based in Kampala.
By Peterson Thiong’o, David Mugwe, Benard Busuulwa, Joseph Mwamunyange, Steve Mbogo, Kennedy Senelwa and Alex Ngarambe
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