SSA sees sharp decline in M&A activity due to COVID-19

Amid the ongoing global pandemic, Sub-Saharan Africa has experienced a sharp decline in mergers and acquisitions (M&A) activity in the first half of 2020. According to the Refinitiv Investment Banking analysis report, M&A deals in the region totalled $10.3 billion during this period, marking a 44 percent decrease compared to the same period last year. This two-year low in M&A activity reflects the challenging economic landscape caused by the COVID-19 crisis. Lucille Jones, Lead Analyst of the Deal Intelligence Team at Refinitiv, attributes the substantial drop in M&A deals primarily to the impact of the pandemic. Jones noted that the year began with promising deal-making activity in January and February, only to witness a significant decline in April as the effects of the COVID-19 crisis intensified. April marked the lowest monthly M&A activity since October 2005. Although there has been a slight increase in M&A transactions in May and June, the overall sentiment remains subdued due to the widespread disruptions caused by the pandemic. Lockdown measures and uncertainty in the economic and political environments have significantly affected business confidence, a key driver of M&A activity. Despite the decline in overall M&A value, there were notable deals that took place in the region during the first half of the year. The largest deal involved Afro-Mats acquiring South African mine operator Unicorn Capital Partners for approximately $600 million. This acquisition was part of Afro-Mats' diversification strategy into commodities. Additionally, there were significant outbound deals, including a Mauritian company's acquisition of a money unit of a genital steel and power company, as well as a telecom deal, which contributed to propping up M&A activity in the region. However, concerns loom over the completion of ongoing deals in light of the pandemic's impact on business operations. Jones highlighted the case of Bala World's potential acquisition of Tongaards' starch business, which faced challenges as one party raised concerns about changes affecting Tongaards' future earnings potential. This scenario exemplifies the uncertainty surrounding M&A deals in the current environment, with companies reassessing their agreements and evaluating potential risks associated with completing transactions. Looking ahead, Jones anticipates a possible increase in withdrawn deals as companies navigate the evolving business landscape. While an uptick in withdrawn deals has not been observed yet, companies are likely to adopt a cautious approach and review contract terms to evaluate the feasibility of completing transactions under the prevailing circumstances. The impact of COVID-19 on deal-making activities in Sub-Saharan Africa underscores the need for greater diligence and risk assessment in navigating the challenges posed by the pandemic. In conclusion, the decline in M&A activity in Sub-Saharan Africa reflects the broader economic disruptions caused by the COVID-19 crisis. As businesses continue to adapt to the 'new normal,' the M&A landscape is evolving, with companies recalibrating their strategies and assessing the risks associated with completing transactions. While challenges persist, industry experts like Lucille Jones provide valuable insights into the shifting dynamics of deal-making in the region, highlighting the importance of resilience and adaptability in navigating the current environment.