US investment bank JPMorgan says merger & acquisition (M&A) activity in Sub-Saharan Africa is likely to top $100bn in both 2022 and 2023, despite the bleak global economic backdrop at present.
While that level of deal-making would be down from the $130bn recorded in 2021, rising international investor interest in renewable energy, digital infrastructure and fintech opportunities is expected to continue driving M&A on the continent over the next two years.
Deal-making south of the Sahara will also be supported by continued investment in established sectors such as financial services, metals and mining, and natural resources, says Njabulo Ngubane, JPMorgan’s head of M&A for Sub-Saharan Africa.
“People are still finding deals to do on the continent. We should hopefully be able to reach about $100bn this year, and next year I’d expect an even better performance,” Ngubane told Business Day in an interview.
“I would say that in Sub-Saharan Africa anything north of $100bn is quite a good number in any given year in terms of announced M&A deal volume.”
Ngubane, who was named in his position at JPMorgan in September after joining its local investment banking team in 2018, says one of the reasons he is so bullish on M&A activity in 2023 is an expected recovery in debt and equity capital market activity, which will serve as an additional deal-making catalyst.
He says debt issuance and capital raising via listings or new share sales on African stock exchanges have been subdued since the advent of the Covid-19 pandemic in 2020, only to be worsened by Russia’s invasion of Ukraine in February.
“The private capital market is expanding partly thanks to the pause we’ve had in the debt and equity capital markets,” says Ngubane. "[But] equity and debt capital market activity is expected to come back next year. We’re planning for a good M&A year in 2023.”
Even so, he says M&A activity in Sub-Saharan Africa has been healthy in 2022 despite weak global economic growth and accelerating inflation. That is because economic growth in Africa continues to outpace much of the rest of the world, prompting many investors to acquire local companies as part of their long-term strategic objectives on the continent, which are increasingly looking more attractive compared with industrialised nations.
Fluctuations
“An unintended consequence of what is happening in developed markets at the moment is that foreign investors are better able to understand fluctuations in some of the macroeconomic indicators one has to grapple with in Sub-Saharan Africa,” he says. “People have an ability to make investment decisions for the future — strategic M&A always has a rationale that stands the test of time.”
The IMF’s World Economic Outlook published in October shows that the development financier expects global economic growth to reach 3.2% in 2022 and 2.7% in 2023. By contrast, Sub-Saharan Africa’s GDP is expected to expand 3.6% and 3.7% in 2022 and 2023, respectively. That is also faster than the IMF’s forecast of just 2.4% and 1.1% for advanced economies in 2022 and 2023.
“The African continent has exciting growth prospects both on an absolute and relative basis that are attracting significant investor interest,” says Ngubane. “The countries with the biggest macroeconomic indicators are likely to be where investors see the biggest M&A opportunities.”
The continent’s comparatively better economic growth profile is the reason JPMorgan is considering expanding its on-the-ground presence in Africa to Francophone West Africa as well as East Africa, though Ngubane declined to name specific countries. At present, the US bank’s Sub-Saharan African footprint spans SA and Nigeria, though it also has a presence in Egypt, which falls under its Middle Eastern operations.
One of the key advantages JPMorgan has over its SA banking rivals is that it is able to bring in global expertise when structuring deals, Ngubane says.
“On any deal, we typically have people from three or four countries working on the same deal team.”
Sweet spot
In terms of the big M&A opportunities, over the next few years corporate carve-outs of noncore units and the potential rapid growth of African-based companies in the renewable energy, digital infrastructure and fintech space could become cross-regional or pan-African operations, he says.
“Some may even establish a global presence beyond Africa, whether it be them looking internationally or global players acquiring them to establish a presence on the continent,” he says. “We’re in a sweet spot in that with the right policy implementation and capital investments ... these companies will grow and drive a lot more activity in M&A.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.