Merger and acquisition (M&A) activity has been slower in South Africa, compared with prior years; however, other African countries have seen an increase in deals closed, said Hogan Lovells partner Sibongile Solombela at the firm’s Africa Forum conference held on Thursday.

M&A activity is still not on par with what it could be, considering massive amounts of private equity available for investment on the continent.

A panel discussion led by Solombela highlighted M&A activity consideration factors and challenges.

With R600-billion worth of investment in pension funds in Africa, it is necessary to attract this investment first, before targeting investment from the rest of the world, the panel found.

Secha Capital MD Brendan Mullen noted that his company invested at an early stage, not only [in] growth capital, but [also in] human capital. “Key capabilities realises capital.”

African Development Bank regional sector manager Neeraj Vij said the private sector was held back by the public sector’s inefficiencies. “The public sector needs to enable the private sector to build on existing or first-established infrastructure.”

“However, most governments in Africa do not engage effectively with the private sector.”

Additionally, Vij pointed out that governments could not negotiate contracts that were to the benefit of all people in the country, leading to political risk for a wider audience of investors.

He added that local companies always needed to benefit from sponsors, otherwise deals would not be sustainable for economic growth.

Investec Bank Africa specialised finance head Chetan Jeeva remarked that M&A activity was the cornerstone of Investec’s corporate client base.

“What we are seeing is deal activity is flat, but if you see through the detail, South Africa is down and Africa is slightly up, in terms of volume, not value. It is a concern.”

Jeeva added that there was about R36-billion available to invest by private equity funds across the continent.

“The challenge in South Africa is that it has a sophisticated market with nonexistent growth and questionable policy. The rest of the continent also has currency challenges and policy uncertainty, but there is better economic growth.

“Egypt, Nigeria and Kenya are the most prominent market from a deal activity perspective. For the last 9 to 12 months, South Africa accounts for around 30% of the M&A activity on the continent, where it used to account for 50%,” Jeeva explained.  

Bigen Group principal investment officer Nangamso Mankai noted that Bigen invested 30% of its capital into African countries, outside of South Africa. She said the South African space had seen a slowdown; the number of projects on the infrastructure side was vast, but it was not easy for financiers to invest, owing to too much risk.

“However, infrastructure has sweet-spot sectors such as private healthcare that is growing at a rapid space. Water crises have [also] brought about opportunities in the water sector’s infrastructure.

“We are also seeing more projects in the agriculture space. A lot of government entities are coming to the party to partner with companies to develop projects together.”

Mankai averred that risk due diligence was the most important factor to deal with upfront in terms of M&A deals.

“Stakeholders need to be engaged and it is also vital to have the right partner, preferably a local partner, since they understand the market better. There is no once-size-fits-all approach to M&A, every market’s dynamics need to be considered individually.”

She added that it was also important to be involved post-investment. “You need to ensure targets have been achieved, investment is not just about signing a cheque.”