November 25, 2020

Local Spotlight: Deal Drivers in Africa

By Suzy Bibko, Content Marketing Manager, EMEA

Africa has its share of challenges when it comes to dealmaking: political instability, economic uncertainty, and now COVID have all cast a shadow over M&A. Can things turn around on the continent next year? At our recent webinar moderated by Peter Cromberge, Hasnen Varawalla, Morne van der Merwe, Tosin Awoyinka, and Tad Zindi discussed how bright the future looks for M&A in Africa.

Forecast: outlook improving
To say this year has been odd for M&A is a bit of an understatement. No one and nowhere has been immune from the effects of COVID. But all is not lost. And many are optimistic about opportunities that are presenting themselves in Africa as it slowly emerges from the darkness, so to speak.

“I would expect deal volumes to significantly increase from where they have been in 2020 – maybe not to levels we’ve seen in last one or two years, but a significant improvement in outlook,” says Varawalla. “There will eventually be a COVID vaccine and a resolution of the election in the US, and I think we will continue to see companies pruning their portfolios of assets. The overall time of recovery in the markets means that businesses are not selling into a distressed environment. And we expect to continue to see government activity in assistance in economic recovery. All of which point towards an improving outlook for M&A.”

Looking ahead: opportunities abound
So, which sectors will fare better than others? And why? “In terms of outlook and market performance, the firms that were able to continue to operate and transition their business models into a remote working environment clearly have been able to benefit better than others, as well as the essential sectors: healthcare, energy infrastructure, communications infrastructure,” explains Awoyinka. “All of these are attractive in their own right, but I think we may see investment managers looking to prioritize their pipeline investments more in these sorts of sectors going forward and see a lot more activity there in the near future.”

“Pent-up demand is also certainly going to be important,” stresses Varawalla. “Optimism, consumer confidence, risk appetite as well. But at the end of the day, a lot of M&A and investment is driven by seeking growth, or people seeing deep value. We are seeing recovery in Q3 in some economics in Africa. Hopefully we have put the worst behind us.”

“For me, the issue is where do you stimulate the demand and what are the opportunities in the COVID-19 world in Africa?” explains van der Merwe. “I think there are a lot of opportunities in the fintech sector. And while the restaurant and tourism sectors have been sort of destroyed, that creates a lot of opportunities because they need to think in a refreshed way about how they can recover. The challenge today is to adapt to that recalibration. And some will get it right. And some won’t.”

Restructuring: an opportunity to rethink things
Getting is right may mean rethinking their views on restructuring. “I think you will see a lot of restructuring opportunities,” says Awoyinka. “The advance of COVID is unprecedented and it has forced people to rethink how they have to think about their business. But I think that will also play into the hand of restructuring opportunities. Fundamentally good businesses will try and find a way to sort themselves out. So, we may see more restructurings in the short term.”

“Broadly, we saw restructuring projects growing by 25% initially in the whole of EMEA in Q2,” says Zindi. “And that was generally forced restructurings. Now, we are starting to see more structured restructurings – where businesses are starting to get to a point where they understand exactly where they are and what need to happen to help them survive and succeed. It’s going to be fascinating to see what comes out of this.”

Technology: time is of the essence
As many of us are still working remotely, making those deals happen is still an issue. As Varawalla says: “The top issue right now for people in terms of managing deal processes or just getting deals done is how to manage the due diligence process remotely without being able to travel.”

And as time is of the essence, that’s where technology comes in. “Time kills deals,” stresses van der Merwe. “If you can use technology to speed up the process and get over the hurdle of the transaction, that’s great.”

However, there appears to still be room for improvement on the tech front, especially with AI and machine learning. “I think the reason why AI and machine learning is scoring zero at the moment (see chart above) is because I think that we don’t know what we don’t know,” explains van der Merwe. “It’s still very new and there’s not a proper understanding of what is actually doable. But I think that in a short time we’ll see a lot of development in that area, and maybe next year at this time it will look different.”

Zindi is confident of what lies ahead for Africa: “The future is bright for Africa. It is urbanizing at 24 million people per year. And 60% of the people in Sub-Saharan Africa are below the age of 25. There is certainly the ability to drive GDP in a positive way and a willingness to innovate and adopt technology. Datasite is here to provide that technology to help dealmakers get those deals done. We listen to the dealmakers there. We are bringing the best technology and innovations to them based on their needs. There is a lot of opportunity in Africa. It’s exciting and Datasite is excited to help turn those opportunities into successful outcomes.”

What else do the experts say?

Hear what else the experts had to say about the state of M&A in Africa and how they are tackling the challenges of the current dealmaking environment there.

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The New State of M&A

Covering the M&A lifecycle, due diligence, asset marketing and restructuring, our report reveals that the M&A process is being transformed by technology as never before. Find out what else 2,235 global practitioners think.

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