Political risk and transparency concerns remain the key considerations for dealmaking in Africa – Consultants

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Political risk and transparency concerns remain the key considerations for dealmaking in Africa – Consultants

1:42 CAT | 11 Apr 2018

The Mergermarket and Control Risks consultancies believe that political risk and transparency concerns are the main obstacles to doing business in Africa, where mergers and acquisitions fell by 26 percent in the first half of 2017.

Political risk was the main obstacle identified by 84 percent of those responding to the survey, a percentage that had doubled from the 41 percent reported last year, according to the study which Lusa has had access to.

In the first half of 2017, 101 transactions worth US$13 billion were recorded, representing a decrease of 25 percent in volume and 26 percent in value compared to the second half of 2016.

The largest business deal in Africa last year took place in Mozambique with Exxon’s US$2.8 billion entry into the Eni-led natural gas exploration in the Rovuma Basin.

According to a recent report, Resourceful dealmaking: Outlook for M&A in Africa, published by Mergermarket in collaboration with specialist risk consultancy Control Risks (www.ControlRisks.com), there has been a dramatic fall in M&A activity, with declines of 25 percent in volume and 26 percent in value in the first half of 2017, compared with a relatively buoyant 2016.

“The drop-off signifies growing investor anxiety surrounding governance issues and weaker economic signals across key African markets,” says Imad Mesdoua, a senior consultant at Control Risks, who along with Mergermarket, has released the report.

“Specifically, political risk and transparency concerns have become the principal obstacles to successful acquisition in Africa. Ethical and compliance considerations are another major factor clouding the outlook for potential investors,” he adds.

The report states that 72 percent of business owners surveyed say that getting caught up in a regulatory or criminal investigation is one of the highest risks in relation to target company’s ethics and compliance standards.

On the other hand, the report points out that almost three in four respondents say that one response to these concerns is to pursue co-investment strategies “as a means of allocating risk more effectively”.

Respondents, whose numbers are not disclosed, include sovereign investment funds, development finance institutions and investment banks which in the last two or the next two years plan to be involved in a financial operation in Africa.

Key findings of the report:

Political uncertainty and relatively weak economic fundamentals have negatively affected M&A activity in Africa. A fall-off in deals was seen in the first half of 2017 compared with a relatively buoyant 2016.
Political risk will be a major obstacle to dealmaking in Africa over the next 12 months, according to 84% of respondents. Other risk factors include transparency concerns and completeness of information, which ranked joint first alongside political risk (84%), as well as compliance and integrity issues (80%).
Almost three-quarters (72%) of respondents say that getting caught up in a regulatory or criminal investigation is one of the highest risks in relation to a target company’s ethics and compliance standards.
Good news though for South Africa, Zimbabwe and Angola: greater political stability and a more favourable economic and business environment are expected to boost M&A activity in the coming year.
72% of respondents are pursuing co-investment strategies in Africa as a means of allocating risk more effectively.

Source: Lusa