By Kevin Kuria
Performance so far – A Resilient Market
Following confirmation of the first case of coronavirus infection in East Africa, the expectation has been a slow-down in deal making activity in the region. However, the market has remained resilient with the number of disclosed transactions in East Africa in 2020, thus far, maintaining pace with that of previous years. As at the end of April, the market had recorded 31 corporate transactions valued at c. USD 360 million straddling across private equity and trade player M&A. This in comparison with the 26 and 27 disclosed corporate transactions valued at c. USD 847 million and c. USD 137 million at the same time in 2019 and 2018 respectively. We attribute this to the fact that a large proportion of deals in the region tend to take more than 12 months from initiation to completion and crucially investor confidence in the long term superior returns available from investment in the region.
Current Market Situation
Anecdotal evidence from our market participation and relationships with all the major traditional & newer investors in the region, reveals maintained optimism for the region. This can be attributed to the significant potential available in many untapped investment themes driven by high long term economic growth expectations and a large underexploited market in many sectors. Significant interest from institutional investors has been witnessed as is demonstrated by the domination of private equity investments in the deal numbers, at 17 (13 as at April 2019), and deal values at c. USD 208 million (c. USD 295 million as at April 2019) with the rest largely being trade player M&A activity. Interest persists from strategic investors both in terms of acquisitions by local investors as well as interest from international trade players. We expect that as strategic investors seek to maintain cash balances and with the significant drop in global interest rates, we may see more financed M&A transactions as an innovation to East African deal making.
The Medium Term – Straights with a few Bumps
Going forward, we expect that for the rest of the year, we will still see strong market activity as transactions that were initiated before the pandemic broke out are completed and those that were begun during the pandemic begin to pick up steam with the reopening of regional economies. We do expect that there will be some slow-down in transaction announcements toward the end of the year and in the beginning of 2021, as we begin to see the impact of even longer transaction times occasioned by the restrictions to movement that have hampered the investment evaluation process. We none-the-less remain optimistic buoyed by the level of interest in the market, as we can attest from transactions in which we are lead advisors, and the range of innovative ideas which have been developed to overcome challenges raised by COVID-19 including the use of drones to conduct factory visits in some markets.