Part two: Nigeria mergers & acquisitions transactions on the rise

Africa's most populous country and fastest-growing economy benefits from the commodities recovery cycle. 

A new report has indicated that Nigeria is increasingly on the radar of dealmakers, as the most populous country and fastest-growing economy in Africa has seen a rise in mergers & acquisitions (M&A) activity of late. 

“Economic growth in Nigeria has recovered slowly in the last two years as a gradual increase in both oil prices and oil output have supported expansion, and dealmaking has followed suit,” said Morne van der Merwe, the head of corporate/M&A at Baker McKenzie in Johannesburg.

On the latter, latest figures from Global Transactions Forecast issued by global law firm Baker McKenzie and Oxford Economics indicates that M&A deals in 2017 amounted to $469.8 million in Nigeria, rising to $2.7 billion in 2018 – an increase of 475 percent. 

This is the antithesis of M&A activity in South Africa, which is Africa’s most industrialised economy. The same Global Transactions Forecast indicates that M&A activity in South Africa has fallen off a cliff in 2018, with $4.3 billion worth of deals in the year – a drop from 2017’s $7.5 billion.

Political uncertainty in South Africa, economic growth that is expected to average less than two percent in 2018, and exogenous factors such as risk-off sentiment towards emerging markets, is the main cause, according to M&A practitioners.

Read more: Part one: South Africa’s M&A activity value reaches $4.3 billion in 2018.
The Global Transactions Forecast predicts that M&A activity in Nigeria will continue to be on the rise. In 2019, it is expected that deals worth around $2.9 billion will be concluded, dropping slightly to $2.5 billion in 2020. In 2021, M&A deal value in Nigeria is forecast to rise to around $3 billion.  In terms of deal volume, the Global Transactions Forecast indicates that 24 M&A deals are expected to be concluded in 2019, rising to 27 in 2020 and increasing to 38 in 2021. 

The year 2015 was a turning point for many African economies that rely heavily on the production and export of commodities for their fortunes, like Nigeria, whose oil proceeds account for more than 60 percent of exports.  

The country’s economic growth outlook was dimmed by the oil and commodity price slump and wild swings in local exchange rates. However, a recovery in Nigeria’s economy is on the horizon due to a rebound in commodity prices.  Research firm FocusEconomics expects Nigeria’s economy to gain traction in 2019, on the back of stronger household consumption and public spending. However, political uncertainty over the outcome of next month’s general election [scheduled for February 16, 2019] also clouds the outlook for the country’s economy. FocusEconomics panelists see Gross Domestic Product increasing 2.4 percent in 2019 and 2.9 percent in 2020.

Nigeria IPOs

One of the drivers of M&A activity in Nigeria is the Initial Public Offerings (IPO) market, as more companies are lining up to list on the Lagos stock exchange. Global Transactions Forecast figures shows that domestic IPOs valued at $340.8 million are expected in Nigeria in 2019, $139.7 million are forecast for 2020 and $216.3 million in 2021.

Wildu du Plessis, the head of capital markets at Baker McKenzie in Johannesburg, said political instability caused a big collapse in capital raising in Nigeria in recent years. “But it’s good to see that Nigeria is recovering and that there is a return of predicted IPOs in Nigeria for 2019 and 2020. Hopefully, this is the start of a long upswing in capital raising activity in the country,” said Wildu. 

Africa outlook

In Africa as a whole, signs of financial and economic stability should help build confidence and boost dealmaking from 2019 onwards, said Morne. “In addition to Nigeria, countries such as Ethiopia, Ghana, Ivory Coast, Kenya, and Rwanda, are improving economically and further political and economic stabilisation would provide exciting opportunities for future investment.” 

According to the Global Transactions Forecast, several major African economies had a turbulent 2017-2018, and though conditions remain difficult in the short term, there are signs that 2019 should be a better year. For Africa overall, the Global Transactions Forecast predicts a rebound in M&A values in 2019 to around $13 billion in total.