Robust M&A activity supported by increasing diversification in Africa

According to Allen & Overy’s latest M&A Index, there is good reason to be optimistic and expect activity to increase in Africa. Although the volume of deals in H1 was similar to the volume in H1 2013 in the MENA region, with no megadeals gaining traction so far this year, international investors are showing renewed interest in the region. Furthermore, a number of sectors, notably pipelines in sub-Saharan Africa with telecoms and oil and gas, are beginning to bear fruit.

Allen & Overy Casablanca partner Hicham Naciri, key partner within the Africa Corporate and M&A practice and managing partner at the firm’s Casablanca office, commented: “There has been a shift in the M&A trends from natural resources to sectors like financial institutions, manufacturing and consumer goods that are now yielding huge opportunities driven by a demanding middle class on the continent”.
Middle East & North Africa

In the absence of significant megadeals, the aggregate value of transactions in the MENA region fell in H1. There are plenty of positives likely to drive activity in the second half of the year, even though political instability is a clear issue in some markets.

Cash levels in regional businesses are high, which is likely to drive further activity, and international investors are showing renewed interest in the region. Credit availability for M&A is good and confidence in the market is at a high, with participants convinced local economies are improving.

On the downside, political instability in the region is likely to continue to be an issue in certain markets. The situation in Iraq is worsening and Libya appears to be slowly sinking back into civil war. Elsewhere, there are more encouraging signs. While challenges remain, Tunisia seems to be heading towards stability, and it is hoped the same will be the case in Egypt following May’s presidential elections. It also remains true that certain investors are undeterred by political instability, willing to make strategic investments with defined objectives even in a turbulent climate.

Notable deals in H1 include Samena Capital’s acquisition of 30.58% of RAK Ceramics (one of the world’s largest manufacturers of ceramics) from the ruler of the Emirate of Ras Al Khaimah. The acquisition was one of only a few large public M&A deals in the UAE and the wider region.

The disposal by dnata, part of the Emirates Group, of a majority stake in its mercator business to Warburg Pincus represented the first investment by Warburg Pincus in the Middle East and is evidence of the increasing interest of U.S. and European PE sponsors in investing in the region, a trend which is expected to continue.

Equity capital markets activity also appears to be on the rise. Emaar, controlled by the Dubai government, plans to raise as much as USD2.4bn from the IPO of 25% of its Emaar Malls Group on the Dubai Financial Market shortly. The recent upgrade of the UAE and Qatar to the Emerging Market status by global markets index provider MSCI is expected to increase capital flows into the region.

One of the largest transactions in Q2 was the announcement by VimpelCom and Global Telecom Holding of an agreement with Fonds National d’Investissement to sell its 51% stake in Orascom Telecom Algérie – a privately owned telecoms company for USD2.6bn. The largest transaction on the continent remains the acquisition of 53% of Maroc Telecom from Vivendi, together with its subsidiaries in
Mauritania, Burkina Faso, Mali and Gabon.

Sub-Saharan Africa

Transaction volumes and values are up on Q1 as the pipeline of deals begins to bear fruit, with the telecoms and oil and gas sectors leading the way. There are also signs that international PE funds are again looking to invest in Africa and get involved in regional transactions.

Institutions are getting stronger, as we have seen with the creation of the 19-nation COMESA organisation in East Africa, which has its own cross-border competition regime. Investors in the region tend to take a long and robust view of political and economic risk.

We expect to see continued investment across the region in this sector, with a few deals already in the pipeline. Other hot sectors include consumer goods and natural resources. Financial services is also attracting renewed interest – from, among others, specialist funds set up to build a presence.

Equity capital markets activity is also on the rise. The Nairobi Securities Exchange is pushing ahead with an IPO floating 38% of its business, and Nigeria’s oil and gas group SEPLAT successfully pulled off a dual listing, in Lagos and London, valuing the group at USD1.9bn.

For further information, please contact Campbell Mcllroy, campbell.mcilroy@allenovery.com, on +44 (0) 20 3088 2782 Notes for Editors:

1. Allen & Overy is an international legal practice with approximately 5,000 staff, including some 525 partners, working in 42 offices worldwide.

2. In this press release ‘Allen & Overy’ means Allen & Overy LLP and/or its affiliated undertakings.

3. The term ‘partner’ is used to refer to a member of Allen & Overy LLP or an employee or consultant with equivalent standing and qualifications or an individual with equivalent status in one of Allen & Overy LLP’s

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