Africa’s economic slowdown is not stopping investors from chasing deals on the continent. In fact, falling currencies and a commodities slump over the past year may be making the continent more attractive to investors as they look for that next cheap deal, a recent report by Mergermarket shows.
Last year saw 290 mergers and acquisitions take place on the continent, a little higher than the 287 registered in 2014. While the total value of transactions dropped by $10 billion from 2014, this was mainly due to a decline in high-value deals. Transactions worth $500 million or more dropped from a high of 14 in 2014 to five last year.
Investors shifted strategy last year, eschewing big deals for smaller investments, with a view toward turning relatively mid-market companies into larger regional players, the report points out. One such is the $100-million deal involving the Africa-focused private equity firm Helios Investment Partners with the Egyptian e-payment platform Fawry. The company says it aims to use part of that investment to expand its business beyond the north African country.
And this is indicative of a larger trend, as Quartz has reported, where close to 90% of last year’s deals do not go above the $250 million mark, and four in ten transactions fall under $100 million. (It’s worth noting, however, that the Mergermarket report included 128 deals of undisclosed value.)
Despite the plunging commodity markets, natural resources still account for significant investor interest in Africa. Energy, mining and utilities still attracted the highest value and volume of deals in 2015.
There is also evidence, however, that deal-makers are diversifying their focus. Between 2008 and 2013, natural resources accounted for 38% of the value of the deals that took place in Africa. By last year, that number dropped to 24%, the Mergermarket report shows. Pharmaceuticals, technology and media, financial services and consumer services all demonstrated growth in terms of the volume of the deals they generated, showing how African states are shifting from being single-sector economies and offering investors more choices.
Even as falling currency values and the decline in commodity prices have created fears of a slowdown on the continent, they have also helped attract foreign M&A deals, which accounted for 70% of the value of transactions that took place last year.