Navigating M&A Success in Africa: Adapting, Innovating, and Leveraging Technology

The insights from these seasoned dealmakers underscore the importance of adaptability, innovation, and thorough preparation in navigating the complexities of dealmaking in South and Sub-Saharan Africa. By leveraging creative deal structures, conducting rigorous due diligence, understanding macroeconomic and regulatory dynamics, and focusing on resilient sectors, dealmakers can successfully navigate challenges and seize opportunities in this dynamic market.

Tell us a bit more about yourself?
I’m a partner at PwC Nigeria, leading the deals advisory business. We help clients with corporate finance, transaction advisory, and restructuring services across Africa. I’ve worked in about 10-15 countries, focusing on various sectors like mining, financial services, oil and gas, consumer goods, and telecommunications. I’m sector agnostic, which allows me to cover a broad range of industries.

Given the current trajectory of inflation, how do you see these factors influencing dealmaking in the second half of 2024? When do you think interest rates will start coming down?
Inflation has been a big problem, particularly in Nigeria, where the central bank has responded with very high interest rates. This makes it difficult for businesses to raise funding locally. On the deal side, we have seen a slowdown, but major transactions in oil and gas and the banking sector may drive activity. The government is giving positive signals that they will sanction significant deals, especially in the oil and gas sector. The central bank of Nigeria’s capitalization agenda for banks will drive capital market activities. Interest rates might not come down until 2025 when inflation appears to be cooling.

Considering the recent significant devaluation of the Naira, how much longer do you think it will take before economic conditions in Nigeria stabilize for deal-making?
The subsidy removal and liberalization of the FX market have had a heavy impact. Food inflation is above 30%. If the central bank can stabilize the Naira, we might see more positive investor sentiment and significant transactions. The fundamentals of these businesses are strong, and assets are currently cheap. The economy needs time to adjust, and stabilization might occur in the next few months if the right policies are implemented effectively.

Turning to other regions in Africa, which countries or sectors might stand out for their M&A resilience through to the end of this year?
Sectors like retail, oil and gas, and mining show potential. There’s a lot of activity and development, particularly in these areas, which could see significant announcements in the second half of the year. We’re working on various projects in mining and capital raising across Africa, indicating resilience and potential for growth in these sectors.

Given the challenging economic environment, are dealmakers getting creative with their deal structures to get deals over the line?
Yes, absolutely. We’re seeing more earn-out arrangements that allow sellers to benefit from future upsides, making it easier to close deals despite current pressures. This creativity is necessary given the macroeconomic headwinds. Structures that accommodate different forms of earn-outs or upside-sharing arrangements are becoming more prevalent, ensuring sellers can still benefit if conditions improve in the short to medium term.

How are technologies like virtual data rooms and AI being used to streamline the due diligence process?
We’ve moved almost entirely to virtual data rooms, which are now more sophisticated. AI tools help us quickly access and analyze data, making our jobs easier and more efficient. Before 2020, about 30-40% of our projects used virtual data rooms; now, it’s almost 90%. The infusion of AI into these processes has significantly improved efficiency, allowing us to handle large quantities of data effectively.

Are there particular regulatory challenges or antitrust scrutiny impacting M&A in Africa?
Regulatory approval can be slow, especially in strategic sectors like oil and gas and banking. Streamlining this process would increase Africa’s appeal as an investment destination. The pace of decision-making is currently slow, which doesn’t give investors confidence. In Nigeria, for example, some major oil and gas transactions have been stuck for years due to regulatory approvals. Accelerating these processes is crucial for attracting investments.

What is your key advice for getting a deal done in this challenging environment?
Investors should play the long game. Africa has a lot of potential, and those who stay committed through the cycles will reap significant benefits. It’s important to have sufficient firepower to withstand headwinds and realize the benefits of long- term investments. The continent offers huge opportunities for those willing to stay the course and navigate the challenges.