M&A Insights from Sub-Saharan Africa and Latin America
The first three months of 2021 have seen record levels of mergers and acquisition deals across the globe with M&A activity reaching $1.3 trillion. The surge in the deal flow can be attributed to numerous factors such as a glut of cheap debt available in financial markets and the increasing popularity of Special Purpose Acquisition Companies (SPACs). While North America, Europe, and Asia-Pacific continue to dominate the market, there have been positive developments from other regions and countries.
Sub-Saharan Africa (SSA)
Sub-Saharan Africa makes up very little of the global M&A market. There are different reasons for this such as lack of access to capital markets and company information essential for determining valuations.
Despite the adverse impact of the pandemic, there was significant activity in the energy & materials sectors which accounted for 26% and 23% of all M&A deals respectively in the first three quarters of 2020. This is consistent with historical trends and is a reflection of the region’s over reliance on natural resources for economic activity.
In the same period, financial services accounted for 14% of deals. This is a noteworthy development as the financial industry across the continent begins to evolve with the rise of FinTech. The potential positive impact of technology on Africa’s development has been well documented but in particular its role in bolstering the continent's financial services industry.
By doing this, FinTech could allow for more economic actors to play a role in the economy, particularly citizens who will have more financing options as consumers and producers. The potential in this has been noted as Stripe’s $200million acquisition of Lagos based Paystack in the last quarter of 2020 demonstrated.
The first three months of 2021 saw $6.1billion worth of deals in SSA. A noteworthy trend within this has been the increase in domestic transactions amongst businesses based in the region. With the African Free Trade Agreement (AfCFTA) being launched in January 2021 aiming to break down barriers and promote intra-African trade this could potentially help encourage more M&A deals amongst the African companies.
Latin America
Similar to Sub-Saharan Africa, Latin America does not account for much of global M&A activity and the 34% drop in 2020 did not do much to help. Despite its strengths, the region has occasionally been viewed as having a very uncertain business environment which has impacted its economic potential.
Nonetheless, the region is still home to some key developing nations such as Brazil and Mexico with considerable global economic relevance. Some of the industries that have contributed towards this are minerals & agriculture. Noticeably, Chinese investors have seen the potential as Latin America has become the second preferred target region for Chinese M&A deals ahead of Europe and North America.
Although the pandemic contributed to the downturn in M&A transactions, it could provide opportunities for deals going forward. As global companies look to make their supply chains more robust, countries such as Costa Rica, Guatemala and Mexico with significant manufacturing potential could see businesses in this industry become targets for acquisition.
Furthermore, the technology sector was vital for keeping M&A activity afloat in 2020 and could help improve deal flow going forward. With many businesses in the region looking to adapt to the structural changes forced by COVID-19 they will need to improve their digital capabilities. With this in mind, acquisitions in the growing startup ecosystem in the region could increase M&A deals in the short and long term. This can be seen from the 644 venture capital transactions that took place in 2020.
