Deal-makers and investment banks are searching for optimism

The state of M&A in a pandemic-hit African market.

During last November’s Africa Oil Week in Cape Town, leading financial voices were predominantly optimistic for a strong year in terms of African deal-making. Indeed, at the start of the year, it seemed progress was being made to ease the biggest risk to global economic growth at that time – the US-China trade war. What a difference a pandemic can make.

Investment banking fees in Sub-Saharan Africa reached an estimated US$128.2 million during the first quarter of 2020, a decline of 15% from last year’s strong start. Advisory fees earned from completed M&A transactions generated US$33.5 million, down 38% year-on-year, while syndicated lending fees declined 47% to US$35.7 million.

Reflecting these unique and uncertain times, the value of announced M&A transactions with any Sub-Saharan African involvement reached US$4.8 billion during the first three months of 2020. This is 48% less than the value recorded during the same period in 2019, and a four-year low. Deals signed also declined 12% over the same period.

Deals with a Sub-Saharan African target declined 74% by value to a 17-year low of US$1.7 billion, as domestic M&A within the region declined 86% from last year and the combined value of inbound M&A deals failed to pass the US$1 billion mark, a level achieved in all but four years since the turn of the century.

According to a recent report on deal optimism in a COVID-19 world from Refinitiv: “As the origin of the outbreak, China is expected to be particularly hard hit. At the time of writing, global growth forecasts have been downgraded from 2.9% to 2.4%. Meanwhile, the latest figures show that China-target M&A had halved by value, year-on-year, in the first part of the 2020, while Chinese outbound was down 85%, the lowest level since 2004.”

Given China’s fundamental relationship to Africa in terms of investment activity and equity flow, the repercussions for Africa’s oil and gas M&A will inevitably be affected for the course of this year.

Refinitiv also note that equity capital markets (ECM) underwriting fees more than tripled to reach US$36.7 million, a first quarter total only exceeded twice since the company’s records began in 2000. Bond underwriting fees increased 20% to US$22.3 million. Almost one-quarter of fees in the region during the first quarter of 2020 were earned from government and agency deals. Almost two-thirds of all fees were generated in South Africa.
JP Morgan earned the most investment banking fees in the region during the first quarter of 2020, a total of US$17.9 million or a 13.9% share of the total fee pool.

Monthly M&A declined in value for two consecutive months, with March 2020 marking the lowest monthly M&A total since August 2009. Africatel Holdings’ US$1.0 billion sale of PT Ventures to Angolan Sonangol in January was the largest deal in the region during the first quarter of 2020.

Deals in the materials sector accounted for 39% of Sub-Saharan African target M&A activity during the first quarter of 2020. South Africa was the most targeted nation, followed by Uganda and Nigeria. Outbound M&A totalled US$1.8 billion during the first three months of 2020, 19% more than the value recorded at this time last year, despite a 27% decline in the number of deals.

With advisory work on seven deals with a combined value of U$993.0 million, JP Morgan holds to the top spot in the financial advisor ranking for deals with any Sub-Saharan African involvement during the first quarter of 2020.

In debt capital markets, The African Development Bank raised $3 billion in a “Fight COVID-19” social bond at the end of March to help alleviate the economic and social impact the coronavirus pandemic will have on livelihoods and economies in the region.

With this deal, and Ghana’s US$3 billion Eurobond in February, Sub-Saharan African debt issuance totalled US$8.9 billion during the first quarter of 2020, up 44% from the value recorded during the same period in 2019, and the second-highest first quarter DCM total in the region of all-time. BofA Securities took the top spot in the Sub-Saharan African bond underwriter ranking during Q1 2020 with US$1.2 billion of related proceeds, or a 14% market share.

With a slowdown in demand amidst the COVID-19 pandemic and the recent shock in oil prices, distinct uncertainty looms over several announced and planned M&A deals in the oil and gas sector. Aurojyoti Bose, lead analyst at GlobalData, commented, “Arranging finance for pursuing deals may emerge as a challenge. Completion of some of these deals is likely to be delayed, while some may be called off.”

Join Africa Oil Week in Cape Town this November for M&A 2020 live on the Plenary Stage. We’ll be reviewing the M&A market for assets/corporate transactions in Africa over the past year and assesssing the impact of the oil price collapse on M&A activity in the coming 6 to 12 months.