Conventional wisdom has long suggested that Ghana would never be a hotbed of mergers and acquisitions (M&A) activity, given the ultra-conservative nature and fiercely proprietary culture of its first few generations of successful entrepreneurs. That myth has been debunked in recent years as the deal-making market has come to life with a series of successful deals as well as some protracted, unsuccessful deal attempts.
For example, in April 2013, press reported the acquisition of International Commercial Bank by First Bank of Nigeria. Old Mutual of the UK announced the acquisition of a majority interest in Provident Life Assurance Company in June 2013, and a deal to acquire Fan Milk Ghana’s parent company was announced by The Abraaj Group the same month. In July 2013 both parties called a halt to the protracted saga of Rand Merchant Bank of South Africa acquiring Merchant Bank. Earlier deals include Wilmar International’s acquisition of a controlling stake in Benso Oil Palm Plantation; the Bank of Africa group’s acquisition of a majority interest in AmalBank; the Ecobank group acquiring The Trust Bank; Metropolitan of South Africa’s investment in Metropolitan Life to gain a controlling interest; and Sanlam and Atterbury’s acquisition of an 85% stake in the Accra Mall from Actis. A current potential transaction is the requirement for Republic Bank of Trinidad and Tobago to undertake HFC Bank’s mandatory takeover offer following its acquisition of a 32% stake in HFC from The Abraaj Group in July 2013. The telecoms sector has also witnessed multiple, large, multi-country portfolio acquisitions over the last several years.
The main drivers for this seemingly sudden change in the M&A landscape have included slowing growth in the developed world coupled with Africa’s continued emergence as a viable investment destination; regulatory impetus; the difficulty of achieving organic growth quickly in certain mature sectors; the realisation of a clear addressable market offered by the continued rise of Ghana’s middle class; and the pan-African geographic expansion ambitions of large corporates.
Three key emerging trends in the evolution of M&As have been the narrow concentration on a few sectors, the overwhelmingly cross-border nature of transactions, and the competition between strategic players and private equity investors for deals.
The sectors that have witnessed the most M&A activity – banking, consumer goods and services, insurance, agriculture, telecoms and real estate – are all industries that ultimately face the end consumer. As Ghana’s official per capita GDP figure has steadily climbed from $1900 at the start of the millennium to approximately $3300 today, strategic players and private equity investors have both taken note and committed capital to back the growth thesis. Given the demographic shift in the rural-urban mix towards heavy concentrations around the country’s main cities, this sharp rise in average spending power has been even more pronounced in urban consumers, who are typically the core focus of the target companies. A typical example of a deal featuring all these trends was the Fan Milk Ghana acquisition by Dubai-based Abraaj. Fan Milk sells affordable, packaged frozen dairy and juice products in a hot country with a growing middle class. While the details of the transaction are not public, rumour indicates that Abraaj emerged as the ultimate winning bidder in a competitive shoot-out that included all of the continent’s private equity houses and a handful of strategic bidders.
Over the medium-term, our view is that these trends will continue and transactions will become more frequent. We also anticipate a breakdown in the traditional evolution of M&A activity, which posits that private equity investors first buy from founding families or through privatisations, improve the business and then sell to a strategic player for a decent multiple.
Given the already fierce competition, it will be interesting to see which will ultimately win out: the greater firepower of unseasoned private equity funds (hungry to get deals at premium prices to raise even larger funds) or the larger synergies that strategic players can extract by bolting deals to their existing platforms.
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