The year 2013 was one of the most active in recent times in terms of business acquisitions and mergers.

The allure of a growing middle class, the increased opening up of the markets and improved regulatory environment have raised the appetite for M&A deals in the East African region.

In order to stay ahead of the competition, leading companies invested millions of dollars in buyouts and mergers to strengthen their presence in East Africa.

According to the 2013 Deal Drivers Africa, published by Mergermarket, PE investors in Africa are less attracted to capital-intensive sectors such as energy and mining and prefer longer term investments in sectors such as consumer, financial services and pharmaceuticals, medical and biotechnology.

“In these sectors, growth is more directly linked to the expansion of the wider economy and individuals’ increase in discretionary incomes. These areas offer high returns and far less capital and political risk than the extractive industries,” said Scott Nelson of ENSafrica, one of the report’s authors.

“Investment areas popular with private equity tend to be consumer facing, which is a concept that cuts across many industries. It is almost treated as a sector in and of itself on the continent,” he said.

In Uganda, deals have tended to concentrate on the financial sector, while in Tanzania they have gone for gas, with most of the players being major global oil companies. In Kenya, deals centred around the financial sector, and with most parties being Kenyan companies.

ALSO READ: Kenya, South Africa firms top East Africa's M&A deals

But even as the region continues to hit record M&A numbers, there are challenges, that experts say must be addressed.

“Two features stand out: transparency and political risks. Lack of reliable data can hamper the due diligence process and, in turn, slow down or halt the deal making process entirely. At the same time, high-profile incidents of politically motivated violence in some countries can taint investor sentiment towards the region as a whole,” noted the report.

Other issues of corruption — and target countries’ ability to deal with them — are often at the fore of international acquirers’ minds. “Buyers and sellers’ differing perceptions of country risk can often lead to valuation gaps,” the report says. Alongside are some of the major business deals that took place in East Africa.

Selected M&A deals in Kenya

BRITAM
Deal: Britam acquires Real Insurance
Value: $11 million
Progress: Ongoing

Britam said that it intends to purchase 99 per cent of Real Insurance, a mid-sized insurer, which has operations in Tanzania and in Southern Africa. The deal will be financed through a mix of cash and a share swap that will see the current shareholders in Real Insurance receive 60 per cent of the value in cash with the remaining 40 per cent been paid in Britam shares.

Britam has a presence in South Sudan and Uganda, but it derives more than 90 per cent of its earnings from Kenya and plans to change this structure in the coming years as the subsidiaries mature. The acquisition of Real Insurance will give the company a presence in Tanzania, Malawi and Mozambique. In another acquisition in November, Britam took a 25 per cent stake in Acorn, a property development firm that has been developing and managing properties for clients such as Coca-Cola East Africa, Deloitte East Africa and Equity Bank.

AL-FUTTAIM
Deal: Al-Futtaim offers to buy 100 per cent of CMC motors
Value: $88.2 million
Progress: Ongoing

The Dubai headquartered Al-Futtaim announced in September plans to buy out 100 per cent shares of CMC Holdings at Ksh13 (US cents15) each. On successful completion of the transaction, CMC Holdings Ltd is expected to be delisted from the Nairobi Securities Exchange. At least 50.6 per cent of CMC shareholders have already agreed to sell their shares.

L’OREAL
Deal: L’Oreal buys Interconsumer
Value: $17.4 million(estimated)
Progress: Closed

London listed cosmetics giant L’Oreal fully acquired local beauty firm Interconsumer Products, makers of Nice & Lovely brands, in a multibillion-shilling transaction. Under the deal, L’Oreal took control of the health and beauty business from Paul Kinuthia, the owner of Interconsumer Products, who will continue to own the diapers and sanitary division that deals in All Time sanitary pads and Bouncy Baby diapers.

SCANGROUP
Deal: WPP Cavendish acquires controlling stake in Scan group
Value: $92.8 million
Progress: Closed

The London-listed communication company raised its stake in Scangroup in October from 31.3 per cent to 50.1 per cent in a deal that will see the company acquire an additional 94 million additional shares in the NSE-listed media firm in a cash and stock deal. In addition to the share purchase, WPP will inject Ksh1.8 billion into the firm.

As part of the deal, Scangroup co-founder and current CEO Bharat Thakrar’s stake in the company dropped by 5.4 percentage points to 13.2 per cent, effectively giving WPP majority control of the media services company. Scangroup’s other shareholders, estimated at 26,000 holding at least 137.2 million shares, saw their stake diluted from 48.19 per cent to 36.22 per cent following the transaction.

ACCESSKENYA
Deal: Dimension Data acquires AccessKenya
Value: $34.8 million
Progress: Ongoing

Dimension Data offered to buy 100 per cent of AccessKenya at Ksh14 (US cents 0.16) a share, a 43 per cent premium to the firm’s last trading price of Ksh9.85. Dimension Data plans to delist the internet service provider from the Nairobi Securities Exchange (NSE) and thereafter merge it with Internet Solutions.

BROOKSIDE
Deal: Brookside acquires Buzeki Diary
Value: $13 million (estimated)
Progress: Closed

Milk processor Brookside Dairies acquired Buzeki Dairy — the makers of Molo Milk and Kilifi Gold — in a deal that consolidates its grip on Kenya’s formal milk market. The deal was estimated at Ksh1.1 billion ($13 million). The acquisition pushes Brookside’s market share up to 44 per cent and cements the company’s market leadership position. Buzeki is fourth in a series of takeovers that Brookside has completed in the past six years starting with Ilara in 2007.

Brookside, which is owned by President Uhuru Kenyatta’s family, has recently cast its eyes beyond the border with the announcement in September of plans to acquire a 20 per cent stake in Ethiopia’s Elemtu Dairy.

SAMEER
Deal: Sameer investments buys off Bridgestone corporation stake in Sameer Africa
Value: Undisclosed
Progress: Ongoing

Sameer Investments, the majority shareholder of tyre maker Sameer Africa, said it intends to buy 41.48 million shares owned by Bridgestone Corporation, which represents a 14.9 per cent stake in the company. Sameer Africa, which holds distribution rights of the Bridgestone brand of tyres in Kenya, is 57.24 per cent owned by Sameer Investments.

Sameer investment is expected to then offload part of its stake in Sameer Africa to an undisclosed strategic investor rumoured to have put the exit of Bridgestone from the company as part of the conditions the firm had to meet if he was to invest in it.

SAFARICOM
Deal: Safaricom buys Yu’s 10 per cent stake in the The East Africa Marine System (Teams) undersea cable
Value: $11 million
Progress: Closed

The Nairobi bourse-listed telecom acquired the stake from Yu mobile at $11 million (Ksh955 million) to offer faster and more efficient Internet data services as well as support the upgrade of its network to 4G. The deal pushed Safaricom’s ownership of the undersea fibre optic network to 32.5 per cent, a share that guarantees the operator additional capacity in Teams, which is offered based on shareholding.

FINA BANK
Deal: Nigerian Guaranty Trust bank buys Fina Bank
Value: $100 million
Progress: Closed

Nigeria’s Guaranty Trust Bank (GT Bank) acquired a 70 per cent stake in Kenya’s Fina Bank Ltd for $100 million. The Nigerian bank will acquire the majority stake in Fina Bank, through a share purchase from current shareholders and direct investment. Fina Bank had a $184 million loan book as at March 31 and operates 38 branches across East Africa.

Selected M&A deals in Uganda

DFCU LTD
Deal: Actis, Norfund and Rabobank of the Netherlands
Date: April 2013
Value: $43 million

Norfund and Rabobank of the Netherlands, a leading European agricultural lender, acquired a 45.02 per cent share in DFCU Ltd from Actis, the British private equity firm. Norfund increased its stake in the listed lender by 17 per cent while Rabobank gained a 27.54 per cent, leaving Actis with a minority stake of 15 per cent.

Rabobank’s entry is expected to boost DFCU’s agricultural lending business, backed by synergies from the former’s long experience spanning close to 60 years and significant expertise in the agricultural value chain. The transaction also expanded Rabobank’s African presence to four countries that include Rwanda, Tanzania and Zambia as well.

MUKONO PUBLISHING LTD
Deal: Fusion Capital and Mukono Printing and Publishing Company Ltd
Value: Undisclosed
Progress: Closed

Fusion Capital, a Kenyan private equity firm, acquired a stake in Mukono Printing and Publishing Company Ltd, one of Uganda’s oldest publishing houses. This investment will fund the publisher’s relocation of production equipment from the city to Namanve Industrial Area alongside purchases of hi-tech printing machinery estimated to cost more than $1 million.

Selected M&A deals in Tanzania

The Fair Competition Commission said it received six applications for mergers between April and September 2013.

However, it approved only one merger application. The remaining five applications were at various stages of analysis. They were Apollo Acquisition Corporation and Cooper Tire & Rubber Company; Prince Bank Ltd, First Merchant Bank and Premier Capital Mauritius Ltd seeking to merge with International Commercial Bank; SCPE, CSSAF & Prif Afrivest merging with ETC Group (Mauritius) Ltd; and Trans Union Africa Holdings Proprietory Ltd seeking to merge with Credit Reference Bureau (Holdings) Ltd.

PAVILION ENERGY
Deal: Pavilion Energy Group buys stake in Ophir Energy
Value: $1.228 billion
Progress: Closed

Ophir Energy, a local oil and gas exploration company sold a stake to Pavilion Energy Group, which is owned by the government of Singapore.
The deal involved the acquisition by Pavilion of 20 per cent of Ophir Energy interests valued at $1.228 billion (about Tsh1.8 trillion). This is equivalent to 10 per cent of the country’s national budget for FY-2013/14 — or the gross domestic product of Kigoma Region.

Under the deal, the Singaporean company acquired assets from three out of the five exploration blocks owned by Ophir Energy and the BG Group. Ophir Energy remains with 20 per cent shareholding of the five blocks, while the BG Group remains with 60 per cent majority shares.

READ: Tanzania to support sale of Ophir offshore blocks to Pavilion

VODACOM
Deal: Vodacom Group buys 35 per cent stake in Cavalry Holdings
Value: $242 million
Progress: Closed

Vodacom Group purchased a 17.2 share from Cavalry Holdings that owned a 35 per cent stake in Vodacom Tanzania through Mirambo Ltd. Cavalry Holdings, a private investment company registered in Jersey Islands, was expected to bag $242 million (Tsh 387 billion).

The South Africa-based Vodacom Group’s shareholding, prior to the deal, stood at 65 per cent and acquisition of the new shares mean that the company will now command an 82.2 per cent shareholding. Mirambo Ltd, which is owned by Tanzanian businessman Rostam Aziz, will retain its shareholding in Vodacom Tanzania at 17.8 per cent.

HELIOS TOWERS AFRICA
Deal: Helios Towers Africa to buy towers from Vodacom
Value: $75 million
Progress: Closed

Helios Towers Africa (HTA), an African infrastructure company has committed to buy more than 1,000 telecoms towers from Vodacom, the Vodafone-backed operator in Tanzania, in a $75 million deal.

Vodacom is to transfer 1,149 telecoms towers to Helios Towers Tanzania (HTT), which will also commit to installing new towers.

The transaction will see Vodacom acquire a quarter stake in the business as part of the transaction. The chief executive of Helios Africa, Chuck Green, said that there were a number of deals in the pipeline, underscoring the interest among the region’s mobile operators in partnership agreements with companies such as Helios as well as rivals IHS and America Towers. He said about 18,000 towers that could be acquired in the next year, representing deals valued at about $2 billion.

Selected M&A deals in Rwanda

LIQUID TELECOM
Deal: Liquid Telecom takes over Rwandatel assets
Value: $4 million
Progress: Closed

In June this year, Liquid Telecom, a Mauritius based fibre-optic firm, bought assets and businesses of Rwanda’s oldest telecom company for $4 million.

Liquid Telecom acquired the assets during the liquidation process to raise money for suppliers when shareholders, the Libyan government’s African Investment arm Lap Green with 80 per cent stake and National Social Security Fund, with a 20 per cent shareholding, failed to recapitalise the company.

Liquid Telecom is the subsidiary of African telecommunications group Econet Wireless. Liquid has the largest fibre-optic network reach in Africa as its infrastructure extends 13,000 km from Cape Town to East Africa.

In the deal, Rwandatel’s assets, including the copper and fibre network, now belong to Liquid Telecom.

The acquisition of Rwandatel’s assets came few months after Liquid Telecom bought the East African assets of the JSE-listed Altech group, including a controlling interest in Kenya Data Networks (KDN).

READ: What is Liquid Telecom upto after buying Rwandatel?

FUSION CAPITAL
Deal: Fusion Capital buys a stake in Rusororo stone quarry
Value: $2 million
Progress: Closed

Fusion capital, a Kenyan firm, acquired a 46.5 per cent equity stake in Rusororo Aggregate Ltd to cash in on the booming construction industry. The deal puts Rusororo Aggregate in a position to improve its production processes, marketing and transportation of products hence making it competitive.

By Peterson Wanjiru, Bernard Busuulwa, Kabona Esiara and Joseph Mwamunyange