South Africa has emerged as the top hotspot for deal-making on the continent, as investors prefer its sophisticated financial and renewable energy sector, with Nigeria a distant second, fresh findings by accountancy and advisory firm, KPMG, under its inaugural Doing Deals in sub-Saharan Africa Report show.
According to the International Monetary Fund this month, South Africa will overtake Egypt and Nigeria to become Africa’s largest economy next year when the continent’s most sophisticated country is expected to raise gross domestic product to $401 billion (R7.8 trillion), just ahead of the other two top regional economies.
New data from KPMG has also revealed South Africa as the top preferred destination for investment and deal-making ahead of Nigeria, famous for its more than 200 million population.
“South Africa was the source of five of the 10 largest deals by value seen in SSA in 2022. The top destinations for future investment in SSA are South Africa, favoured by 50% of respondents, followed by Nigeria at 30%,” noted the report by analysts from KPMG.
All in all, merger and acquisition activity across sub-Saharan Africa (SSA) “made an impressive comeback” in 2022. The region had about 297 announced deals during the year under review, a 21% increase on the prior year, although total values for deals were sharply lower at $19.2bn.
South Africa (SA) accounted for five of the 10 largest deals by value recorded for sub-Saharan Africa in 2022, with the biggest transaction being the purchase of a 55.44% stake in private healthcare services group Mediclinic International by MSC Mediterranean Shipping, Remgro and SAS Shipping Agencies Services for $2.6bn.
SA also had two mega deals in the energy and mining related sector acquisitions, a category that dominated the top 10 M&A deals for 2022. The five energy and mining deals in the top 10 had a spread across the continent although South Africa had two – Northam Platinum’s acquisition of a 63.3% stake in Royal Bafokeng Platinum for $1.7bn and Lekela Power which was acquired by Egypt’s Infinity Energy for $1.5 bn– while Tanzania, Angola and Nigeria had one each.
In the next two years, South Africa and Nigeria are expected to account for “the lion’s share” of deal making in sub-Saharan Africa, among those planning an acquisition in the region. About half of all investors surveyed for their future acquisition activity in sub-Saharan Africa said they would be focused on targets in SA while 30% were more inclined towards Nigeria.
Technology Media and Telecom (TMT) and financial services are also areas of interest for deal activity across the region. Sub-Saharan Africa’s total deal value for TMT targets in 2022 was however, “surprisingly low” compared with other sectors.
South African internet company Naspers and Dutch firm, Prosus this year announced an unwinding of a $46.1bn merger, highlighting that “the cross-shareholding” under the deal had been flagged as impeding stock buybacks. It had also been viewed as excessively complex by capital market investors.
But by in large, “investors continue to be drawn to SSA’s abundant natural resources, demand for connectivity, technology that enables access to the last mile, and sectors including healthcare, financial services, and education that are benefiting from a rapidly expanding” consumer market.
South Africa was also a key market for deal-making in its energy transition matrix, with vast progress made thus to integrate hydro, solar and wind power into its energy mix.
“There are start-ups that will require capital to initiate new developments,” said one managing partner with a financial sector investment company in South Africa.
Challenges for investors however persist for both SA and the sub-Saharan Africa region, ranging from external factors such as macroeconomic conditions, political volatility, to internal factors including divergent valuation/price expectations and poor information among other factors.
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