Insights into M&A activity in sub-Saharan Africa A Nigerian - - PowerPoint PPT Presentation

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

• High GDP growth rates,

despite modest pace of reforms

• Public sector continues to play

a dominant role

• Favourable demographics –
• pportunity or challenge
• Shift from East to West

State Market Industry/services Agriculture Urban Rural Entrepreneurs Bureaucrats Global integration Isolation More informed/ Connected Less informed The last decade witnessed the emergence of SSA as the “last” frontier of rapid economic growth, spurred by political and economic reforms

• 4%
• 2%

1% 4% 6% SSA Middle East & North Africa Latin America & Caribbean Asia North America Europe CIS 1991-00 2001-10 2011-20 1294 1349 1409 1472 1552 1638 1737 1835 1939 2046 590 557 601 611 624 661 704 737 770 803 2010 2011 2012 2013E 2014F 2015F 2016F 2017F 2018F 2019F Sub-Saharan Africa North Africa 1,885 1,906 2,010 2,083 2,176 2,299 2,440 2,572 2,709 2,848 Source: (World Bank)

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

Africa Rising: Real GDP growth comparisons to other regions

Source: (World Bank)

Real GDP ($’billions)

• Highest GDP growth rates across continents, albeit from a low base
• Average GDP per capita increased from > $600 in 2000 to $1,800 in

2013

• 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

• At $2.1 trillion in 2013, Africa’s economy is currently about

the size of Russia’s

• By 2019, it is expected that Africa would be as large as the

current economy of France

Population (Million)

Age distribution of the population (2013)

(Source: World Bank, FBN Capital Research)

43% 43% 41% 42% 39% 45% 28% 43% 44% 43% 21% 20% 20% 19% 19% 20% 20% 21% 20% 19% 29% 30% 32% 33% 34% 30% 38% 29% 29% 31% 4% 4% 4% 4% 5% 4% 7% 4% 4% 4% 3% 3% 3% 3% 4% 3% 6% 3% 3% 3%

Angola Cameroon Sudan Kenya Ghana Tanzania South Africa DR Congo Ethiopia Nigeria 0-14 15-24 25-54 55-64 65+ 173.6 94.1 67.5 53.0 49.3 47.9 44.4 38.0 22.3 21.5

• Approximately 61% of the population (372 million people)

in Sub-Saharan Africa are under 25 years, compared to 19 million (UK), 105 million (US) and 434 million (China)

• Projections indicate that by 2025, one in five people in

the world will come from Africa, and Africa’s population will exceed that of Europe, South and North America combined

• The projected growth in population, combined with GDP

growth, and rising household income and purchasing power, makes Africa a very attractive market for investors

• Africa’s young consumers are leapfrogging fixed-line

infrastructure and jumping straight into digital mobile technology

• 1 in 5 young Africans have bought a product or service

with their mobile phone

• 7 in 10 young Africans access social media on their

mobile phones

Favourable d demo mogr graphics o

• f a large

ge you

• ung

ng a and rapi pidly g growi wing po popu pulation…

Share of households in each income bracket

%, millions of households

59 85 128 Discretionary income Basic needs Household income brackets $PPP1 2005 34 24 18 29 32 29 18 21 23 11 14 17 6 8 12 2000 2008 2020F 163 244 196 Globals (>20,000) Consuming middle class (10,000-20,000) Emerging consumers (5,000-10,000) Basic consumer needs (2,000-5,000) Destitute (< 2,000) Households with income > $5,000 Million (Source: McKinsey Institute)

… and nd a rising ng mi midd ddle class shou

• uld s

sus ustain Africa’s gr growt wth in the he me medium t m term

1Purchasing power parity adjusts for price differences in identical goods across countries to

reflect differences in purchasing power in each country 100% =

• Africa’s consumer opportunity rests on a few pillars

including: exponential population growth, an increasing middle class, Africa’s youth, rapid urbanisation and fast adoption of digital technologies (Africa is already a world leader in mobile money)

• Between 2000 and 2012 Africa’s aggregate

household consumption expenditure grew at an average annual rate of 10.7% to about $1.3 trillion

• By 2020, it is estimated that more than half of African

households will have discretionary spending power which would drive demand for affordable housing, white goods, healthcare, etc

• By 2030 over 500 million Africans are projected to be

in the middle class

52

Number of African cities with more than 1 million people each

$18 billion

Internet contribution to GDP

$300 billion

Internet contribution to GDP by 2025

Africa T Tod

• day

Africa T Tomo

• morrow

$2.1 trillion

Africa’s combined GDP in 2013,

$1.4 trillion

Africa’s combined consumer spending in 2020

$2.6 trillion

Africa’s combined GDP in 2020

128 million

African households with discretionary income (over $5000) in 2020

50%

Of Africans living in cities by 2030

167 million

Internet Users

600 million

Internet Users by 2025

The he Africa of

• f the

he Future

329 million

mobile subscribers

525 million

Smartphone connections in the region by 2020

1.1 billion

Number of Africans of working age by 2040

950million

Mobile broadband connections in Africa by 2019 (Source: Deloitte, McKinsey, FBN Capital Research)

500 million

Africans projected to be middle class by 2030

321 million

Africans aged between 15 and 24 by 2030

M&A Activities in sub-Saharan Africa: Trends and Key Drivers

GDP($’billions) 2013 GDP Annual Growth (%)

(Source: World Bank)

Af Afric rica c cont

• ntinue

nues t to

• evolv
• lve from
• m a region i

gion in n whi hich e h econom

• nomic

ic a activ iviti ties w were pr predom domin inantl ntly agr grari rian t to

• one
• ne dr

driven m mos

• stly

ly by by indus ndustria trial a and nd servic ice-based ased a activities

21% 44% 28% 22% 47% 29% 27% 10% 3% 31% 27% 22% 25% 29% 11% 17% 34% 61% 29% 43% 52% 34% 47% 50% 42% 53% 39% 28% 68% 26%

Agriculture Industry Services 2013E 2014F 2015F-20F 7.3 6.8 6.5 1.9 3.5 4.2 4.1 5.8 6.1

• 6.0

3.4 3.3 4.7 5.3 6.8 10.4 8.6 7.7 7.1 4.5 6.0 7.0 7.1 7.6 8.5 5.5 6.1 5.5 5.0 5.0 5.05 5.55 5.93 29.3 30.6 33.2 47.9 48.1 55.2 66.5 121.7 350.6 521.8*

GDP by Sector contribution (2013)

• 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

• Industry corresponds to mining, manufacturing (also reported as a separate subgroup), construction, electricity, water, and gas.
• 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

Nigeria South Africa Angola Sudan Ethiopia Kenya Ghana Tanzania DR Congo Cameroon

Mean

5000 10000 15000 20000 25000 25 50 75 100 2006 2007 2008 2009 2010 2011 2012 2013 2014

Number of deals Value of deals US$m

Quarterly trends of M&A activity (2006 – Q3’2014)

Number of deals Value of deals $’million (Source: MergerMarket 2014)

• Since 2006, US$276bn worth of M&A transactions have taken

place in Africa, over a total of 1,647 deals

• 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

• M&A Activity in Nigeria has been largely value accretive –

growth in market share, acquisition of existing structures, financial impact *Transactions with undisclosed deal values are excluded

Number of deals 30 60 90 120 150 180 210 240 270 2006 2007 2008 2009 2010 2011 2012 2013 2014 $0m - $250m $251m - $500m >$501m

Deal size by volume/value (2006 – Q3’2014)

M&A Tren ends ( (1/ 1/3) 3)

Agriculture, 5% Energy, Mining & Utilities, 24% Financial Services, 13% Industrials & Chemicals, 15% Telecom, 4% Others, 39%

M&A Tren ends ( (2/ 2/3) 3)

Africa M& M&A: Deal eal V Val alue by y Sec Sector Africa M& M&A: De Deal V l Vol

• lum

ume by by Sector tor

2012 2013 YTD 2014 2012 2013 YTD 2014

176

deals

Agriculture, 4% Energy, Mining & Utilities, 71% Financial Services, 4% Industrials & Chemicals, 4% Telecom, 3% Others, 14% Agriculture, 1% Energy, Mining & Utilities, 32% Financial Services, 10% Industrials & Chemicals, 2% Telecom, 29% Others, 26% Agriculture, 2% Energy, Mining & Utilities, 60% Financial Services, 15% Industrials & Chemicals, 5% Telecom, 3% Others, 15%

$22.3 billion $26.2 billion

Agriculture, 7% Energy, Mining & Utilities, 19% Financial Services, 13% Industrials & Chemicals, 11% Telecom, 2% Others, 48% Agriculture, 4% Energy, Mining & Utilities, 17% Financial Services, 11% Industrials & Chemicals, 12% Telecom, 8% Others, 47%

184

deals $21.4 billion

227

deals

176

deals

(Source: MergerMarket 2013)

South Africa, 53% Nigeria, 11% Kenya, 7% Angola, 3% Others, 26%

M&A Tren ends ( (3/ 3/3) 3)

Africa ca M& M&A: Deal V Deal Value by alue by Country Country Africa ca M& M&A: Deal V Deal Volume by

• lume by Country

Country

2012 2013 YTD 2014 2012 2013 YTD 2014

(Source: MergerMarket 2013)

South Africa, 50% Nigeria, 33% Congo,8% Ghana, 1% Tanzania, 1% Others, 6% Mozambique 37% South Africa, 28% Nigeria, 8% Tanzania, 6% Congo, 6% Angola, 6% Others, 9% Nigeria, 41% S.Africa, 31% Angola, 6% Ghana, 2% Others, 20%

$22.3 billion $26.2 billion $21.3 billion

South Africa, 57% Nigeria, 12% Kenya, 4% Tanzania, 3% Angola, 3% Others, 21% South Africa, 56% Nigeria, 7% Kenya, 5% Mozambique , 3% Tanzania, 3% Others, 26%

176

deals 227

deals

184

deals

Mer ergers an and Acquis isit itio ions in in 2014 2014 Deals eals ab above $100m ve $100mill llio ion

Annou

• unc

nced Targ rget C t Country try Tar Target Industry try Buyer yers Buyer yers Country try Stake ( ake (%) Value lue ($ ($US USDm Dm) ) Nov-14 Nigeria Mainstreet Bank Finance Skye Bank Nigeria 100 700 Oct-14 Nigeria OML 29 Oil & Gas Aiteo; Taleveras Consortium Nigeria 100 2,580 Oct-14 Nigeria Enterprise Bank Finance Heritage Bank Nigeria 100 344 Sep-14 Togo ETI Finance Qatar National Bank UAE 11 283 Sep-14 Nigeria Mtn 9151 Towers Telecommunications IHS Nigeria 100 2,000 Aug-14 Tanzania Lake Cement Limited Industrials Banco Products India 51 1,300 May-14 Mali Ansongo Ltd. Industrials Callabonna Resources Limited Australia 3 1,170 May-14 South Africa Quirk Digital Marketing TMT WPP plc UK 100 794 May-14 Rwanda Rwanda Compost Limited Environmental Services Access, Investment Arm Nigeria 70 650 May-14 South Africa Lincoln Meade Park ltd Real Estate Bonatla Property Holdings Ltd

• S. Africa

75 472 May-14 South Africa Property in Selby, Gauteng Real Estate Texton Property Fund Ltd & Others

• S. Africa

100 420 May-14 South Africa St George's Mall Real Estate Texton Property Fund Ltd & Others

• S. Africa

100 342 May-14 Ivory Coast Atlantique Telecom Group TMT Itissalat Al-Maghrib Morroco 100 300 May-14 South Africa Bonatla Property Holdings Finance Fastpace (HK) Limited Hongkong 100 290 Apr-14 Chad Caracal Energy Oil & Gas Glencore UK

• 1,300

Apr-14 Zimbabwe Sakunda Holdings Group O & G Services Trafigura Beheer B.V. Netherlands 49 263 Apr-14 Swaziland Vintage Dance Studio TMT Avera Wellness Centre Swaziland 100 254 Apr-14 South Africa Brolink (Pty) Ltd Santam Ltd.

• S. Africa

100 200 Apr-14 South Africa Superkolong Proprietary Ltd Precious Metals El Nino Mining (Pty) Ltd.

• S. Africa

50 200 Apr-14 Tanzania Iringa Tobacco Company Ltd FMCG Tanzania Cigarette Company Ltd Tanzania 100 192 Apr-14 Sudan Sudanese Egyptian Bank Finance Islamic Solidarity Bank of Sudan Sudan 66 190 Intra-Africa transactions Inbound transactions

Sell-side drivers of M&A activities

(Source: MergerMarket – Deal Divers Africa 2013, Survey of 100 investors and advisers based in Africa)

• Market participants expect increasing interest activity by foreign investors/companies to be a key driver; for e.g. considerable interest

is expected to continue to come from Asia for resources and FMCG

• There has also been an increasing number of African companies looking at regional expansion via inorganic routes
• Sell-side M&A still remains largely driven by regulatory intervention (particularly in the FI sector), corporate divestments and Private

Equity exits.

Emerging trends still playing out in the market

Buy-side drivers of M&A activities

3% 6% 8% 9% 16% 17% 17% 24%

0% 5% 10% 15% 20% 25% 30%

Subsiding market volatility Private equity buyouts Undervalued targets Cash-rich corporate acquirers Supply-side developments, e.g. New oil/gas discoveries, … Consolidation in overcrowded markets African companies expanding into parts of Africa Increasing interest from foreign investors

6% 12% 17% 20% 20% 25%

0% 5% 10% 15% 20% 25% 30%

Private equity divestments Valuations at top of the curve Distress-driven M &A Funding expansion in more profitable business areas Refocusing on core areas Foreign companies divesting non-core assets in Africa

Key dri drivers of

• f M&A Acti

tivities

M&A in Nigeria: Practical Issues & Key Lessons

Reg Regul ulatory Approval

• val

Deal Sourcing and Origination Due D e Dilige gence Integration and Post-Deal Issues 6

• Wide price dislocation between vendor and

acquirer

• Auctions are becoming more frequent, with

bidders paying more than initially anticipated

1

• Often driven by regulators
• Target companies are unstructured and

relatively small

• A number of attractive sectors such as

FMCG, O&G services and Healthcare, are highly fragmented

• Prevalence of “key man” risk

2 3

• Paucity of information and poor

accounting practices

• Low compliance rates in the

adoption of IFRS standards

4

• No appetite from local banks to finance

M&A deals, although there has been interest recently in resource plays

• Non-existent High Yield bond market

and access to mezzanine financing

• High cost of local currency funding

(typically high-teens for prime rate), with knock-on effect on return profile

5

• Lengthy process with

high ambiguity on timing to close-out

• Excessive regulations

in certain sectors, creating bureaucratic decision making process

Val alua uation

• n

Expec ectat ations

• ns

Financ ance

• Ability to enforce post-

completion indemnities, Representations, Warranties

Pra ractical Issue ues fa facing g M&A tra transactions in n Nige geria

Key L ey Les essons

1. Be patient and resilient 2. ‘Local knowledge’ cannot be over emphasized; find the right partner 3. Engage stakeholders early 4. Use competent advisers 5. Quality & adequacy of information on the target 6. Be decisive and keep focused on timely execution

Most attractive gr growt

• wth s

sectors i in Nige geria

• New national accounts, new fastest growing

sectors

• Telecoms now a “mature” industry grouped

with Nollywood and music

• Manufacturing (inc. cement) the star,

dominated by food, beverage and tobacco

• Construction growth across the public and

private sectors

• Education growth flagged by employment

data

5 10 15 20 25

Manufacturing Construction Information & comms Education Financial & insurance

2013 2014 Five fastest growing sectors Q2 (% chg; y/y)

(Sources: National Bureau of Statistics (NBS); FBN Capital Research)