Kenya among hotspots in Africa for private equity in 2016 — survey

The optimism about increased deals in 2016 is pegged on the region’s strong economic growth in 2015. East Africa had an estimated GDP growth of 5.6 per cent last year, compared with 4.6 per cent for sub-Saharan Africa. PHOTO | FILE 

By ALLAN OLINGO

In Summary

• Kenya is one of three top markets on the continent that international private equity firms will be looking to enter this year through mergers and acquisitions.
• In East Africa, Tanzania took second position after Kenya, followed by Uganda and Rwanda.
• The survey notes that Kenya’s increased consumer spending and greater trading among members of the economic bloc makes it a favourite among investors seeking M&A deals in the region this year.

Kenya is one of three top markets on the continent that international private equity firms will be looking to enter this year through mergers and acquisitions.

The country has been ranked third after South Africa and Nigeria, in a new merger markets survey by global consulting firm, Control Risks. This was despite sub-Saharan Africa’s top two economies facing economic slowdown and energy challenges.

In East Africa, Tanzania took second position after Kenya, followed by Uganda and Rwanda.

The survey notes that Kenya’s increased consumer spending and greater trading among members of the economic bloc makes it a favourite among investors seeking M&A deals in the region this year.

Last year, however, the survey found that the number of M&A deals in the East African region dipped to 32, worth some $1.14 billion, down from 34 in 2014.

The drop was attributed to falling commodity prices, political volatility due to elections in Uganda and Tanzania, and an anticipated rise in US interest rates that hurt regional economies.

The deal making in the region in 2015 cut across various sectors, with UK-based banking group Old Mutual’s $156 million acquisition of a 37.7 per cent stake in Kenyan financial services company UAP Holdings being one of the biggest.

Other deals recorded last year include Swiss asset manager Quantum Global Alternative Investments’ acquisition of construction company Savannah Cement and Indian-owned drug manufacturer Cipla’s $30 million purchase of a 51 per cent stake in Ugandan pharmaceutical distributor, Quality Chemicals.

Helios also sold its 12.22 per cent stake in Equity Bank to Norwegian funds Norfund and NorFinance for $230 million.

Barclays Africa also acquired 63 per cent of First Assurance for $30 million. UK logistics and engineering firm Atlas Development also disclosed that it was at an advanced stage of talks with potential takeover targets in Kenya, Tanzania and Ethiopia, while Millicom acquired 85 per cent of Zanzibar’s Zantel for $1 billion.

Economic growth

The optimism about increased deals in 2016 is pegged on the region’s strong economic growth in 2015. East Africa had an estimated GDP growth of 5.6 per cent last year, compared with 4.6 per cent for sub-Saharan Africa.

The African Development Bank projects that the region’s GDP will grow to 6.7 per cent this year.

Stephane Lhomme, senior managing director, Europe and Africa, at Control Risks said that East Africa is attractive to investors as economies in the region are developing rapidly.

“The region also has a generation of young, well-educated, successful entrepreneurs who are more open than previous generations to accepting outside capital in order to modernise their operations or expand beyond their home market,” said Mr Lhomme.