How COVID-19 has impacted mergers& acquisitions across Africa

Mergers and acquisitions (M&A) activity across Africa has taken a hit in the first half of 2020, with a significant decrease in both volume and value. The dark clouds of the COVID-19 pandemic loom over the M&A market in the short-term, but there is a glimmer of hope for a potential medium-term recovery. Wildu du Plessis, a Partner at Baker McKenzie, discussed the impact of COVID-19 on M&A activity in Africa in an interview with CNBC Africa. He highlighted the decline in M&A activity across the region, with some exceptions in Nigeria where deal numbers have shown an increase compared to the previous year. Nigeria, coming off a low base in 2019 due to economic challenges, has seen a notable uptick in deal numbers, showcasing a 44 percent increase. However, the value side of deals in Nigeria presents a slightly different story, with limited data availability from the previous year skewing the statistics. South Africa, on the other hand, witnessed a 60 percent drop in deal value, reflecting its ongoing economic, political, and currency challenges. The COVID-19 pandemic has further exacerbated the downturn in M&A activity across the region, with South Africa showing a continued downward trajectory. Despite the challenges, South Africa remains a significant player in driving deals in Africa, contributing to almost half of the total deals counted. In terms of deal types, about 50 percent of South African deals are cross-border transactions. The primary sectors attracting investments in South Africa include materials, with significant investments from the UK and the US. Moving to Kenya, the country experienced a 50 percent drop in M&A activity, with a focus on technology and media-driven sectors. Although Kenya's deal numbers are smaller compared to South Africa and Nigeria, the country has remained relatively resilient to the impact of the pandemic. Across sub-Saharan Africa, there was a 24 percent decrease in deal count, with the majority of deals being cross-border transactions. The total value of the deals amounted to nearly $7 billion, indicating a significant drop from the previous year. Industries garnering interest for investments include materials, industrials, and telecoms. Despite the ongoing challenges, there is a potential for distressed M&A activity to pick up in the second half of the year. The current economic climate presents opportunities for new entrants and existing industry players looking to expand. Healthcare and infrastructure are identified as promising sectors for future investments in Africa. While the region has not yet hit rock bottom in terms of asset pricing, uncertainties remain that could continue to drive prices down. Optimism surrounds countries like South Africa, Kenya, and Nigeria as potential investment destinations due to their distress levels and economic potential. Healthcare and infrastructure sectors hold promise for M&A opportunities, with a potential focus on driving the green economy through initiatives such as electrification in Africa.