Insights into M&A activity in sub-Saharan Africa A Nigerian Perspective Presentation by Kayode Akinkugbe Managing Director/CEO, FBN Capital at AFRICA INBOUND 2014 25 November 2014
Outline 1. Why sub-Saharan Africa? 3 2. M&A Activities in sub-Saharan Africa: Trends and Key Drivers 9 3. M&A in Nigeria: Practical Issues & Key Lessons 16
Why sub-Saharan Africa?
Why sub-Saharan Africa – several economies are in transition The last decade witnessed the emergence of SSA as the “last” frontier of rapid economic growth, spurred by political and economic reforms State Market • High GDP growth rates, despite modest pace of Bureaucrats Entrepreneurs reforms Isolation Global integration • Public sector continues to play a dominant role More informed/ • Favourable demographics – Less informed Connected opportunity or challenge Rural Urban • Shift from East to West Agriculture Industry/services
GDP P growth rat ates es ac across A Afric ica a have r ave rem emain ained r robust des espit ite r rec ecen ent ec economic ic and nd ge geopo political h headwi winds Real GDP ($’billions) Africa Rising: Real GDP growth comparisons to other regions 2,848 6% 2,572 2,709 2,440 803 2,299 770 2,176 737 2,010 2,083 704 661 4% 1,885 1,906 624 611 601 557 590 1% 2046 1939 1835 1737 1638 1552 1472 1409 1349 1294 SSA Middle East Latin Asia North Europe CIS & North America & America -2% Africa Caribbean 2010 2011 2012 2013E 2014F 2015F 2016F 2017F 2018F 2019F 1991-00 2001-10 2011-20 Sub-Saharan Africa North Africa -4% Source: (World Bank) Source: (World Bank) • At $2.1 trillion in 2013, Africa’s economy is currently about • Highest GDP growth rates across continents, albeit from a low base the size of Russia’s • Average GDP per capita increased from > $600 in 2000 to $1,800 in 2013 • By 2019, it is expected that Africa would be as large as the current economy of France • Mobile phone subscriptions have risen from 16 MM in 2000 to 329 MM in 2013 • Between 2011-20, Africa is expected to grow at 5% p.a, in line with growth rates anticipated in Asia and ahead of the rest of the world
Favourable d demo mogr graphics o of a large ge you oung ng a and rapi pidly g growi wing po popu pulation… Age distribution of the population (2013) Population • Approximately 61% of the population (372 million people) (Million) in Sub-Saharan Africa are under 25 years, compared to 173.6 Nigeria 3% 19 million (UK), 105 million (US) and 434 million (China) 19% 31% 4% 43% • Projections indicate that by 2025, one in five people in 94.1 Ethiopia 44% 20% 29% 4% 3% the world will come from Africa, and Africa’s population will exceed that of Europe, South and North America DR Congo 67.5 43% 21% 29% 4% 3% combined South 53.0 • The projected growth in population, combined with GDP 28% 20% 38% 7% 6% Africa growth, and rising household income and purchasing power, makes Africa a very attractive market for investors Tanzania 49.3 45% 20% 30% 4% 3% • Africa’s young consumers are leapfrogging fixed-line Ghana 47.9 39% 19% 34% 5% 4% infrastructure and jumping straight into digital mobile technology Kenya 44.4 42% 19% 33% 4% 3% - 1 in 5 young Africans have bought a product or service with their mobile phone 3% Sudan 38.0 41% 20% 32% 4% - 7 in 10 young Africans access social media on their Cameroon 3% mobile phones 43% 20% 30% 4% 22.3 3% Angola 21.5 43% 21% 29% 4% 0-14 15-24 25-54 55-64 65+ (Source: World Bank, FBN Capital Research)
… and nd a rising ng mi midd ddle class shou ould s sus ustain Africa’s gr growt wth in the he me medium t m term Share of households in each income bracket %, millions of households • Africa’s consumer opportunity rests on a few pillars Household income brackets 163 196 244 including: exponential population growth, an $PPP 1 2005 100% = increasing middle class, Africa’s youth, rapid Globals (>20,000) 6 8 12 urbanisation and fast adoption of digital technologies (Africa is already a world leader in mobile money) 11 Consuming middle 14 class 17 Discretionary (10,000-20,000) • Between 2000 and 2012 Africa’s aggregate income 18 household consumption expenditure grew at an 21 Emerging consumers average annual rate of 10.7% to about $1.3 trillion (5,000-10,000) 23 • By 2020, it is estimated that more than half of African 29 households will have discretionary spending power Basic consumer needs 32 which would drive demand for affordable housing, Basic needs (2,000-5,000) white goods, healthcare, etc 29 • By 2030 over 500 million Africans are projected to be 34 in the middle class Destitute 24 (< 2,000) 18 2000 2008 2020F Households with 59 85 income > $5,000 128 Million (Source: McKinsey Institute) 1 Purchasing power parity adjusts for price differences in identical goods across countries to reflect differences in purchasing power in each country
The he Africa of of the he Future Africa T Tod oday Africa T Tomo omorrow 128 million 500 million $2.6 trillion $2.1 trillion African households with Africans projected to be Africa’s combined GDP discretionary income middle class by 2030 Africa’s combined GDP in 2013, in 2020 (over $5000) in 2020 950million 167 million Mobile broadband 50% connections in Africa by Internet Users 2019 Of Africans living in cities by 2030 321 million 52 $1.4 trillion Africans aged between Number of African cities with more than 1 Africa’s combined consumer 15 and 24 by 2030 million people each spending in 2020 $300 billion 329 million Internet contribution to GDP by 2025 1.1 billion mobile subscribers 525 million Number of Africans of Smartphone connections 600 million working age by 2040 in the region by 2020 $18 billion Internet Users by 2025 Internet contribution to GDP (Source: Deloitte, McKinsey, FBN Capital Research)
M&A Activities in sub-Saharan Africa: Trends and Key Drivers
Af Afric rica c cont ontinue nues t to o evolv olve from om a region i gion in n whi hich e h econom onomic ic a activ iviti ties w were pr predom domin inantl ntly agr grari rian t to o one one dr driven m mos ostly ly by by indus ndustria trial a and nd servic ice-based ased a activities • The continent is coming of age with the contribution of agriculture to GDP dropping from an average of 43% in the 1980s (SSA excluding South Africa) to just under 30% according to recent estimates GDP($’billions) 2013 GDP Annual Growth (%) GDP by Sector contribution (2013) 2013E 2014F 2015F-20F 7.3 6.8 6.5 31% 43% 26% 521.8* Nigeria 3% 29% 68% 350.6 1.9 3.5 4.2 South Africa 10% 61% 28% 121.7 4.1 5.8 6.1 Angola 27% 34% 39% 66.5 -6.0 3.4 3.3 Sudan 17% 53% 55.2 29% 4.7 5.3 6.8 Kenya 48.1 47% 11% 42% 10.4 8.6 7.7 Ethiopia 47.9 22% 29% 50% 7.1 4.5 6.0 Ghana 33.2 28% 25% 47% 7.0 7.1 7.6 Tanzania 30.6 44% 22% 34% 8.5 5.5 6.1 DR Congo 29.3 21% 27% 52% 5.5 5.0 5.0 Cameroon Mean 5.05 5.55 5.93 Agriculture Industry Services • Following Nigeria’s GDP rebasing where the base year was updated from 1990 to 2010, to capture sectors of the economy which were previously unaccounted for • Services correspond to wholesale and retail trade (including hotels and restaurants), transport, and government, financial, professional, and personal services such as education, health care, and real estate services (Source: World Bank) • Industry corresponds to mining, manufacturing (also reported as a separate subgroup), construction, electricity, water, and gas.
M&A Tren ends ( (1/ 1/3) 3) Quarterly trends of M&A activity (2006 – Q3’2014) • Since 2006, US$276bn worth of M&A transactions have taken place in Africa, over a total of 1,647 deals 100 25000 • Following a peak in the fourth quarter of 2007, M&A activity has remained relatively steady, with 188 deals taking place in 2012 at a combined value of US$33bn, slightly up on the total value for 2011 20000 75 • M&A Activity in Nigeria has been largely value accretive – growth in market share, acquisition of existing structures, financial impact Value of deals $’million 15000 Number of deals Deal size by volume/value (2006 – Q3’2014) 50 270 10000 240 210 180 Number of deals 25 150 5000 120 90 60 30 0 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2006 2007 2008 2009 2010 2011 2012 2013 2014 Number of deals Value of deals US$m $0m - $250m $251m - $500m >$501m (Source: MergerMarket 2014) *Transactions with undisclosed deal values are excluded
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