Ghana's Mergers & Acquisitions Report 2017


Money is changing hands all around Africa, with the continent emerging as a target for global players. According to the AFDB, M&A deals on the African continent totaled USD 27 billion in 2011 down from USD 44 billion in 2010. During the past years, deals in South Africa accounted for 57% of the overall activity in Africa with total value worth USD 12.2 billion.
Despite the fact that the global volume in African mergers and acquisitions (M&A) had slowed down for the third consecutive year to 2015, falling 16% year-on-year since 2004, the volume from African-led acquisitions hit record highs in 2015. Quartz reported that, in 2015, regional acquisitions stood at USD 15.3 billion.
Investor confidence in the Ghanaian market has also been fueling a rise in M&A activity from 2004 to 2015. Though data from firms before and after acquisition is, however quite scanty, Goodman AMC estimates these transactions could have surpassed USD 15 billion from 2004 to 2016, and is expected to double to all-time records of over $32 billion from 2017 to 2030 in major merger deals over this period. This will largely be driven by the need by companies to accelerate earnings since most firms in Ghana are now focusing on growth. M & A activities have occurred in a host of key sectors of Ghana’s economy, from the pharmaceuticals and telecoms to oil/gas and manufacturing, finance and the mining industries. The push towards free-market economies instituted about 2 decades ago in sectors such as the telecommunications and mining industries saw a lot of activity as once public-owned enterprises were sold to private entities in Ghana. The mining sector has accounted for the most M&A activity from 2004 to 2016, while telecom sector overtakes the financial sector as the sector with the highest grossing inbound value.
According to Amegah, 2012 in the past, mergers and acquisitions in Ghana had been rather unpopular as a result of a much archaic entrepreneurial and business culture as well as due to past political environment. Most Ghanaian businesses preferred to work for themselves. Many Ghanaian companies were often controlled by their founders or families who are usually the top or largest shareholders and the top management.
However, despite the fact that political and economic instability in the past, subdued the growth of businesses in Ghana, the country has managed to embark on political democracy, economic liberalization and financial deregulation for the last two decades. This dynamic shift has seen corporate Ghana facing more intense competition which has now compelled firms to seek mergers and acquisitions as alternative strategies to internal growth. Hence there has been more frequent occurrences of M & A activities in Ghana in recent times.
There had been quite a number of M & A deals in Ghana from 1990 to 2008. Some of these include, La Palm Royal Beach Hotel, Berjaya Elmina Beach Hotel and Busua Beach Resort which merged to form a new entity known as Golden Beach Hotels. National Savings and Credit Bank Limited was also acquired by Social Security Bank Limited, which was also later acquired by Societé Genérale of France. Mobil Oil was acquired by Total Petroleum Ghana Limited. Kumasi Brewery Limited and Ghana Brewery Limited merged into a new company Ghana Breweries Limited, which later merged with Guinness Ghana Limited to form Guinness Ghana Breweries Limited.

However, the largest of the mergers, which attracted a great deal of publicity, was between Ashanti Gold Fields Company Limited and Anglo Gold South Africa Limited which merged to form a new corporate entity known as AngloGold Ashanti Limited. Other recent mega acquisitions in Ghana include the acquisition of a 70% stake in Ghana Telecom from the Government of Ghana by Vodafone Plc. on a cash free, debt free basis for USD 900 million, the takeover of Scancom Areeba by MTN deal and the acquisition of Benso Oil Palm Plantation by Unilever Ghana Limited and which was later acquired by Wilmar) and Ecobank Ltd which acquired The Trust Bank (TTB). The acquisition of the 24,000 metric tonne capacity Commodities Processing Industries by Touton for USD 18 million also represents one of the most recent mega deals in the agroprocessing sector.
Data analysed from the Bank of Ghana’s Monetary Policy Committee showed the growing improvement in business confidence across Ghana as at March 2017 which has in turn reflected positive sentiments about economic and industry prospects. As stated in our previous report title The Economic Impact of Ghana’s Election in 2017 Goodman AMC can somehow confidently forecast that after Ghana’s main presidential election, the new President is likely to speed up strategic transformation in terms of industrial change with His ‘One District One Factory policy’. This accompanied with a potential lowered interest rate environment, a stable cedi against the dollar and cheap financing persisting, we forecast a surge in M&A deal-making beyond 2017.


Ghana: A Buoyant M&A Market

In terms of mergers and acquisitions, 2017 is going to offer great opportunities for investors in Ghana after a slowdown in deals in 2016, which was largely due to the uncertainties from Ghana’s elections. The aftermath of the elections has gone further to solidify Ghana as a very stable business environment and deals are expected to take place in several sectors of the country’s economy, encompassing different markets and which would demand complicated transactions where several millions of dollars-worth of cash or stocks is expected to changed hands.
Looking at the confidence boost in Ghana’s business environment as noted by the World Bank’s Ease in Doing Business Report 2017, which ranked Ghana 9th out of 47 countries in the sub-Saharan Africa sub-region, this to a large extent proves that this year would be a bullish year for Ghana.
Multinationals look more willing than before to spend colossal amounts of money in the purchase of companies in order to expand their businesses in Ghana. Even though FDI transactions had decreased from USD 14.1 billion in the second quarter of 2016 to USD 241.17 million for the third quarter, this however, could somehow not represent the true track record of investment transactions in Ghana, since 2016 represented an election year.
Ghana’s high interest rate levels could also cause a slowdown in market trends, since it has made it more difficult than ever for local companies to raise money. Companies are now under pressure from shareholders to raise external funds through foreign M & A deals.
With many economic sectors experiencing modest growth, purchasing a healthy company in Ghana– and consequently paying premium values for the firm – is an attractive idea for business executives with corporate cash pile. Companies listed in the United States, Europe and Asia have benefited from sharp increases in their share prices, which have enhanced their capability to add to revenue.
Currently, the M&A cycle in Ghana is quite different, there is now more large cross-continent mergers with American, European and Asian companies which has boosted most of the M&A activity. Private equity groups, including Carlyle, Abraaj, Blackstone, and Kingdom Holdings with billions of funds raised over the years, are all now willing to do deals in Ghana.
The Ghanaian market has been lifted by ever-heavier involvement of private equity investors, who are also flush with cash and looking for opportunities both to make acquisitions and to sell their current holdings in a high market. For instance, Global Africa Investments Africa Management, the private equity investment firm based in Mauritius, acquired the Mövenpick Ambassador Hotel in Accra from Kingdom Holding Company for a total enterprise value of $100 million. The deal, which closed at the end of December 2016, is the largest open market hotel transaction in sub-Saharan Africa to date. The acquisition had been executed through QG Africa Hotel LP, Quantum’s $500 million hospitality fund. Our full report on the Private Equity transactions in Ghana is available here.
All things being equal, it is likely that the enthusiasm for big-ticket transactions will continue to be a factor in 2017 and beyond. Though markets remain somehow fragile at the moment, there is an upswing to quality in Ghana’s M&A market.


Top 5 Sectors for M&A Deals in Ghana

In Africa, often when a deal goes wrong it was because of dwindling economic fortunes since most African countries have very unstable economies , however companies that have over the years repeatedly done M&A in Africa tend to outperform in the longer term. Per our deductions, there has been an increasing number of investor parties trooping into Ghana from corporate trade buyers to private equity companies who are currently doing due diligence over potential targets in 2017, where a surge in deals is expected.
Below are the top M & A hot-spots in Ghana.

Financial Services
Initial M & A transactions in Ghana’s financial sector could be traced back to when Société Générale underwent a horizontal merger between Social Security Bank (SSB) and National Savings and Credit Bank (NSCB) in May, 1994. Ecobank followed suit by merging with Trust Bank in 2000; Access Bank was next by merging with Inter-continental Bank in 2011; which was then followed by UBA merging with Amalgamated Bank in 2012. Prominent among them in recent times are the mergers and acquisitions between UT financial Holdings and BPI, Merchant Bank and Fortis and International Commercial Bank and First Bank of Nigeria (FNB).
The banking sector’s income before tax had registered a negative year-on-year growth of 0.5% in July 2016 compared with a growth of 18.2% in July 2015. Similarly, the industry’s net profit after tax contracted by 1.0% in July 2016 compared with a 15.1% growth in the same period in 2015. The industry’s net interest income recorded slower growth of 19.4% in July 2016 compared with a 34.5% growth in July 2015.
Indicators of profitability for the banking sector has shown a decline in profitability with declining trends in annualized data on after-tax Return on Equity (ROE) and pre-tax Return on Assets (ROA). The banking sector’s ROA decreased to 4.8% in July 2016 from 5.6% in July 2015, while ROE decreased from 27.3% to 23.5% over the same period.
Despite marginal declines (which was largely due to Ghana’s elections), being recorded in the key financial indicators, the Bank of Ghana notes that the banking sector remained sound and solvent as at July 2016.
In the last decade, Ghana’s banking sector has witnessed a lot of mergers and acquisitions which had changed the ownership structure of banks in Ghana, especially Ghanaian banks from local to expatriate banks. The immense change of ownership structure of most of these banks, as can be noticed, were motivated by the Bank of Ghana’s regulations concerning the change in banks’ operating in Ghana’s minimum capital requirement. The first major increment in the minimum capital requirement of banks came in the year 2008, where the Bank of Ghana set the minimum capital of banks in Ghana at GH¢60 million, and in 2013, this figure was further increased to GH¢120 million. The reason for this exercise by the Bank of Ghana was to protect depositor’s funds. After these two increments, a lot of banks who could not meet the deadline resorted to mergers and acquisitions in order to comply with the Bank of Ghana’s regulations. Banks like Intercontinental Bank, Trust Bank of Ghana and BPI were taken over by Access Bank, Ecobank and UT bank respectively.
It is therefore worth noting that, the volatile macro-economic situation and a somehow complex regulatory environment in Ghana implies that many financial institutions in Ghana, from banks to insurance to wealth management groups/asset managers and non-bank lender are constantly searching for scale and growth. First Bank in its bid for growth, identified the ideal opportunity in the acquisition of 100% equity ownership of ICB West Africa (Ghana, the Gambia, Guinea and Sierra Leone), with Ghana being the flagship bank. The acquisition of the aforementioned institutions is expected to increase FirstBank's total assets by $258 million (1.32%).
The upsurge of micro-finance or savings and loans companies in Ghana has also created room for lucrative purchases with less risks involved; since most healthy micro-finance firms are mostly in search of recapitalization to achieve bank status. This implies that, targeting healthy micro-finance firms with a larger network of branches across Ghana provides a great opportunity for buyers. Fidelity Bank became the first bank to make this move in 2014 after acquiring ProCredit Savings and Loans Company. Its acquisition of ProCredit alone saw Fidelity Bank expanding its branch network to 80 across the country, with 96 ATMs, 300 agencies and more than 700,000 customers across the country.
Data available shows that most deals in the financial sector has yielded tremendous outcomes. Ecobank acquired the Trust Bank of Ghana by taking over 100% of Trust Bank’s shares and absorbing all the staff of the Trust Bank. After the takeover took place in 2012, Ecobank Ghana increased its ROE immensely from 37% in 2011 to 61%. The ROE decreased in 2013 and took a big leap in 2014. This goes to confirm that the acquisition of the Trust Bank by Ecobank had good impact on post-acquisition performance of Ecobank.
It is a different situation for UT Bank on the other hand, because UT Bank’s ROEs have rather diminished after the merger with BPI, but this was largely attributed to the lack of a proper road map scheme to ensure the effective implementation of the merger or acquisition strategy.
However, a study by Barnor and Twumwaa, 2015 concluded that UT Bank’s merger deal had succeeded because the acquirers paid key attention to variables; UT Holdings Company acquired BPI by buying 40.40% shares of BPI and became the majority shareholder. According to the study, the deal went on to become very successful even though there had been some drops in ROEs for UT Bank as stated earlier.
Trinidad and Tobago’s retail banking group Republic Bank Limited (RBL), is currently the largest shareholder in Ghana’s HFC Bank. RBL had previously been a shareholder of HFC Bank since December 2012 when it purchased an 8.7% equity stake in the bank for USD 8 million. It then increased its stake in June, 2013 to 32.02% after buying an additional 23.3% which was previously held by Aureos Africa Fund LLC. It further acquired another 7.9% in 2013 from the Union Bank of Nigeria which increased RBL's shareholding in HFC Bank to the current 40% stake.
In the insurance sector, it is also projected that the minimum capital requirement of GHC 15 million which was set by Ghana’s Insurance regulator, the National Insurance Commission in 2014 is likely to create more mergers in the Insurance sector in order to meet regulatory demands. Regency Alliance Insurance Ghana merged with NEM Insurance to create a new company, Regency-NEM Insurance Ghana Limited. Regency holds a 60% controlling stake in the new merger, the merger has been forecast to create a larger firm which would be able to underwrite bigger transactions and also bring innovative products to the market as well as improve service delivery and client expectation.
Despite this structural shift, the aggregate value of financial services mergers and acquisitions (M&A) only reached USD 215 million from 2004 to 2016. There has been very few strategic expansion-led deals in the sector while most of the transactions have been in the banking sector with few in the insurance sector.

Telecom
M & A activities in Ghana have been notable in the telecommunication industry. The telecom industry’s transformational process in Ghana has made it a very vital component for development. Previously, Ghana’s telecom industry was characterized by monopoly, low tariffs and inefficiencies. It was based on this that the Government of Ghana decided to sell part of Ghana Telecom (GT) to Telekom Malaysia Berhard.
This led to the first ever merger in the telecommunications industry in Ghana which was a three year Technical Services Agreement (TSA) where G-Com Limited, a consortium led by Telekom Malaysia Berhard acquired 30% shares of Ghana Telecom from the Government of Ghana (GOG) for USD 30 million on the 20th of February 1997. This was in a bid to restructure Ghana‘s telecommunications industry to make it commercially viable. Exactly three years later when the contract expired, GOG did not renew the contract due to failure on the Telekom Malaysia Berhard partners to meet its operating targets agreed upon in the TSA. The Government of Ghana contract abrogation with the G-Com Limited was an example of a merger deal gone wrong due to political and operational issues and litigation that ensued, resulting in the Government of Ghana paying huge international arbitration cost awarded in favour of G-Com Limited.
Not long after the ligation challenges were over, the Ghana government entered into a management partnership with Telenor Management Partners (TMP), a Norwegian consortium. The deal was subsequently assigned in July, 2002 to develop a Business Plan for Ghana Telecom covering the period 2003 – 2007. Following the acceptance of the Business Plan, the Government of Ghana entered into a Management Contract Agreement with TMP in February 2003 to implement the proposals in the Business Plan with the mandate to help improve the sector by providing additional telephone lines, extending telephone services to every corner of the country as well as developing the existing quality of service to position the company in the global market.
Finally In 2007, the Government of Ghana sold 70% shares in the enlarged Ghana Telecom to Vodafone; on a cash free, debt free basis for $900 million. Ghana Telecom’s assets comprised of GT fixed line operations, cellular operations (OneTouch), Broadband operations, GT call centre (Exzeed), SAT-3 submarine Fibre optics landing station and National Fibre Optics Backbone.
Data available clearly indicates that, the acquisition of Ghana Telecom by Vodafone brought about an increase in the growth rate which has led to superior market performance and a sharp increase in profitability. Profitability in 2007 (last year as Ghana telecom) was - 33.82% as compared to profitability in 2009 (year after takeover by Vodafone) - 62.29.
Another interesting acquisition, which can be described as the GSM evolution in Ghana, also started essentially in November 1996 with the launch of the first GSM service by Scancom Limited under the brand name of Spacefon. In September 2007, Africa’s largest mobile group, Mobile Telecommunications Network (MTN) acquired Investcom Limited which owned Scancom (GH) Ltd. the operators of Areeba in Ghana. MTN offered to acquire the Areeba’s holding company Investcom for $5.5 billion, as part of its growth strategy in emerging markets. At the end of 2005 Investcom had 4.9 million customers in Africa, the Middle East and Europe. The Beirut-based company had owned mobile operations in Benin, Cyprus, Ghana, Guinea Bissau, Liberia, Sudan, Syria and Yemen as at that time. MTN offered USD3.83 per Investcom share and an alternative of USD2.08 in cash and 0.18 MTN shares per Investcom share.
Another notable acquisition was when Western Telesystems Company (WESTEL) became a fully-owned state enterprise following the Government of Ghana’s acquisition of the two-thirds equity stake held by ACG Telesystems Ghana, via the Ghana National Petroleum Company (GNPC). The Government of Ghana had already owned one-third of WESTEL. After becoming a wholly owned subsidiary of the Ghana National Petroleum Corporation (GNPC), Westel was floated in an IPO following the opening up of the market. Western Wireless International (WWI) from the U.S. acquired a majority stake, but in its allotted duopoly period installed fewer than 3,000 of the 50,000 lines stipulated by its concession and its own target of 100,000 lines per annum. 
In October 2007 Celtel International, a subsidiary of Kuwaiti based Zain Telecom (formerly named the MTC Group) announced it had signed an agreement to acquire 75% of Western Telesystems Ltd (Westel) from the Government of Ghana for USD 120 million. The Government of Ghana remained a shareholder in Westel with a 25% holding at that time of the purchase through the Ghana National Petroleum Corporation (GNPC). Bharti Airtel in 2010 also acquired Zain Telecom’s African operations for $10.7 billion of which Zain Ghana was a subsidiary. 
The number of subscribers or users has always mattered in Ghana’s telecom industry, a sector which has long been driven by transformational M&A activities. M & A deals carried out in Ghana’s telecom industry from 2004 to 2016 is estimated at $1.92 billion. Corporate deal-making in this industry has been driven by both the necessity to create economies of scale and the convergence of services as consumers increasingly demand interplay between their fixed line and mobile devices.  
In recent times, Airtel had been in talks with rival Millicom International Cellular for a possible merger in Ghana, Airtel Africa has already sold out its operations in Burkina Faso and Sierra Leone to Orange which acquired a 100% of the two companies’ share capital for a reported $900 million. The consolidated revenue of the two companies is estimated at 275 million Euros. With Orange likely to acquire Airtel’s operations in Ghana, and reaching a merger deal with Tigo, this will represent a ‘new paradigm in Ghana’s telecom industry and would boost massively the subscriber base of the merged entity to make it the second largest telecom operator in Ghana in terms of subscriber base.
The sheer scale of this transaction is bound to trigger more deals in the sector in 2018 and beyond. And is likely to pave the way for more future mergers of not just mobile service providers but also between smaller technology companies in Ghana who will begin to realize that joining forces makes sense at a time when everyone in the industry faces highly capital-intensive demands for investment in technology and building networks.
More consolidation is expected, particularly in Ghana, for instance, the ailing GLO Network looks very primed to be acquired due to its dwindling subscriber base despite its massive investment into technological equipment and machinery and expanding its network across Ghana.

Pharmaceutical
Most makers of drugs and compounds have been scouring for deals in Europe, Asia and America but ignoring the potential of the sector across Africa. According to Mckinsey, the value of Africa’s pharmaceutical industry increased to USD 20.8 billion in 2013 from just USD 4.7 billion a decade earlier. This growth according to Mckinsey is continuing at a rapid pace and it is predicted that the market will be worth $40 billion to $65 billion by 2020. Even though that’s far below the U.S. (with an estimated value of USD 393 billion) and Japan (USD 123 billion), Africa’s attractiveness does not lie in its market size but in its rapid growth, with an estimated 9.8% compound annual growth rate between 2010 and 2020.
The value of Africa’s pharmaceutical industry has risen from $4.7 billion in 2003 to $20.8 billion in 2013. These totals include patented and generics prescription drugs and over-the-counter medicines.
Over the past two decades Africa has emerged from a troubled history to become one of the world’s fastest growing economic regions. Africa’s GDP—USD 2.4 trillion in 2013, and expected to climb to USD 3.3 trillion by 2020—is already at par with Russia’s. Household spending is rising too; Africa’s consumers spent $1.8 trillion in 2013, according to Mckinsey.
The Ghanaian pharmaceutical market is made up of approximately 30% locally produced drugs and 70% imported products; the latter originating mainly from India and China (Harper, Gyansa-Lutterodt, 2007). In 2005, the total market was estimated at USD 250 million at retail price level in Ghana. With the assumption that a growth rate of 6-8% (drug expenditure tends to grow above overall economic growth) the total market size was estimated to have been around the range of USD 300 million. Another factor driving growth has been the introduction of health insurance in Ghana, measurably increasing utilization of health care facilities; more patients mean more prescriptions.
According to the World Health Organization, Ghana had an estimated 7.2 million cases of malaria in 2006. Of those cases, 3.9 million of them occurred in children under five years old. Malaria is thus considered a nationwide problem. Past estimates of the economic burden of malaria on households and the economy abound. Asante and Asenso-Okyere, 2003 estimated in a research paper that a 1 % increase in malaria morbidity reduces economic growth by about 0.41 %, and that an episode of malaria costs households US$15.79 (in 2003 dollars). A study by Abotsi, 2012 also further surmised that an episode of malaria costs households between US$10.20 (uncomplicated malaria) and US$46.62 (severe malaria) (in 2007 dollars). Furthermore, Sicuri et al. found that households spent between US$5.70 (uncomplicated malaria) and US$48.73 (severe) in Ghana.
The World Health Organization (WHO) estimates that although costs of investing in malaria elimination between 2016–2030 could reach US$101.8 billion (with another US$673 million invested in research and development annually), the returns on such investment could be 40:1 globally and 60:1 for sub-Saharan Africa, implying, for example, that for every US$1 spent, economic gains of US$40 or US$60 would be accrued.
The demand for quality anti-malarial drugs alone, has always been high in Ghana which places pharmaceutical manufacturers of anti-malarials under pressure to supply the ever increasing demand of the drug. As per moving annual total (MAT) for the third quarter of 2011, Sanofi generated $6.7 billion and Novartis $5.8 billion, making them the two largest pharmaceutical multinational corporations in emerging markets. With their respective local growth rates of 13.6% (Sanofi) and 8% (Novartis). Norvatis is one of the largest manufacturers of anti-malarial drugs in Africa.
As noted by BMI, Novartis for instance is aiming to increase its presence within Ghana through sales from cardiovascular disease therapeutics. In 2014, Novartis' sales from cardiovascular products worldwide amounted to USD 8.0 billion. Having a local presence in Ghana will therefore open the doors for Novartis to neighboring countries suffering from similar cardiovascular diseases; Ghana has a particularly high rate, with 75% of adults suffering from hypertension, but only 4% having it under control. This demonstrates a combination of both unaffordable medicines and a lack of health care services in Ghana.
In 2014, pharmaceutical sales in Ghana came in at just USD 12.29 per capita, compared to USD 24.8 in Zimbabwe and USD 22.3 in Cote d'Ivoire. Highlighting revenue earning opportunities in Ghana, BMI forecasts pharmaceutical sales in Ghana to double by 2019 to USD 365 million, compared to the proportionally smaller market size of USD 329 million in 2014.
Ghana’s local pharmaceutical companies including, Kinapharma, Ernest Chemist, Tobinco and DANNEX have made inroads in the country’s pharmaceutical sector, the growth drivers of these companies is as a result of the increasingly urbanized population, which means better infrastructure and greater household purchasing power.
Ghana is positioned to also play a key role in driving and accelerating pharma growth in Africa. Underestimating the pharmaceutical industry in Ghana could lead to loss of revenue to most big pharma. Even though, the local pharma sector in Ghana has a very effective large supply and distribution chain systems that provide efficacious medicines across most of West Africa and parts of sub-Saharan Africa and are also available to all income levels, Ghana’s drug manufacturing sector is grappling with how to improve its capacity. For example, industry commentators suggest that out of 3,000 drugs registered by Ghana’s Food and Drugs Board (FDB) only 900 are produced locally.
Potential mergers and acquisitions will therefore increase capacity to help meet the increasing demand. In a bid to increase its capacity, DANNEX Pharmaceutical acquired local drug manufacturer Starwin Products Limited in 2014 and in 2016 also went on to acquire Aryton Drugs, a subsidiary of Adcock Ingram. ASPEN also acquired 65% of the issued share capital of KAMA, a privately owned company incorporated in Ghana for a purchase consideration of USD4.5 million.
Ghana presently serves as the regional hub for pharmaceutical manufacturing and distribution to the over 300 million people who live within the Economic Community of West African States (ECOWAS). There is still room for lots of growth in Ghana's pharmaceutical manufacturing. Even though most factories in Ghana are not operating at full capacity, Ghana’s pharmaceutical exports to other countries in the region are valued because of its high quality. This industry has many advantages for investors, such as a sound structure in place and access to a large and in-need market.
Our data shows that the value of M&A transactions carried out in the pharmaceutical product and preparation sector from 2004 to 2016 stood below $25 million. This reflects how the volume of pharmaceutical deals in Ghana has remained relatively flat though it has great potential.

Oil and Gas
There is perhaps no other sector which is currently facing such difficult market conditions as oil sector. This is an industry which has been thrown into turmoil by plunging oil prices, which are still below a once-unthinkable $52 a barrel benchmark.
As companies look for growth all around in Africa, they have increasingly focused on up-and coming markets such as Ghana. Oxford Economics expect that by 2018 the value of emerging markets-related M&A transactions will be more than 50% higher than in 2015.
Ghana’s petroleum industry, though relatively young has been touted as having the potential to moving the country from a developing country to a developed one. The growth of the industry is highly dependent on ensuring that petroleum products produced at the downstream sector of the industry are distributed consistently and timely to consumers through an effective and efficient supply chain system.
In Ghana, petroleum products account for about 26% of total energy consumption (Ministry of Energy, 2010) and about 70% of Ghana’s commercial energy needs (Oil and Gas in Ghana - Overview, 2013. Petroleum product consumption continues to increase in Ghana with increase in population yet the supply does not correspond to demand, this gives cause for more investment into the downstream sector.
The downstream oil distribution is increasingly adopting a variety of supply chain solutions ranging from crude selection to product distribution at the retail outlet in the face of uncertainties relating such as oil prices, refining margins and long lead times associated with crude purchasing and product trading.
Key private players in Ghana’s downstream sector are the Bulk Oil Distribution Companies (BDCs) and Oil Marketing Companies (OMCs) where major M & A deals have also taken place. Total Ghana Limited (TGL) which was formerly registered in Ghana as BP Ghana Limited changed its name to Elf Oil Ghana Limited following the acquisition of BP Ghana Limited by Elf Aquitaine in August, 1992. The company’s name was changed again to TotalFinaElf Ghana Limited following the merger of the parent companies of TGL and Elf Acquitaine on international markets by Special Resolution dated 21st December, 1999. On the 1st of August, 2003, the company’s name was again changed to Total Ghana Limited following the renaming of the TotalFinaElf Group as Total S.A. Total Ghana Limited was registered with 1,500,000 ordinary shares of no par value of which 500,000 were issued to the founding members for capital of ¢999,000. Total Petroleum Ghana Limited is the result of the Merger between Mobil Oil Ghana Limited and Total Ghana Limited. Following the Annual General Meeting held on 6th September, 2006, the Shareholders of Mobil Oil Ghana Limited and Total Ghana Limited approved a name change to Total Petroleum Ghana Limited (TPGL).
A study by Harvey SK which examined the impact of the merger between Mobil Oil Ghana and Total Petroleum Ghana Limited which both operate as Oil Marketing and Companies. Data available was based on the annual final accounts data covering both the pre- and post-acquisition period of 2000 to 2012; Performance measures or indicators examined showed that all profitability ratios, except the Gross Operating Margin (GOM), declined after the merger. Expenses ratio followed a downward trend in the post-merger period. All liquidity ratios had also declined slightly during the post-merged period. Similarly, the study found that financial leverage declined after the merger. However, the study discovered that average rate of growth of turnover and assets increased in the post-merger period relative to the pre-merger period. This was an indication that the merger impacted positively on growth. Moreover, earnings per share and dividend per share were all found to have followed upward trends in the post-merger period. This implies the merger benefited shareholders in terms of increased share earnings.
Harvey SK, 2015 later indicated that though the merger between Total Ghana and Mobil Ghana did not lead to an improvement in profitability since all the indicators of profitability had declined except the GOM, the general decline in profitability could be attributed to the competitive nature of the oil industry and unstable crude oil, which are exogenous to the firms’ environment. Also, the new firm might have been enjoying market economies leading to a persistent decline in expenses ratio after the acquisition and since the merger was debt-financed, this caused liquidity and financial leverage which made it difficult for the new firm to meet its financial obligations, at least in the short run.
In conclusion, Harvey, 2015 further noted that the acquisition had enhanced growth of the new firm as reflected in turnover and assets growth in the post-acquisition period and also increased shareholder value by earning per share and dividend per share during the post-merger period. The increasing earnings per share and dividend per share together with declining profitability showed that it is possible to design a merger in Ghana’s oil and gas sector which produces no economic benefits (profit) initially, but which however produces an immediate increase in earnings per share.
Following these findings, we can conclude that while the acquisition of Oil Marketing Company; Mobil Ghana by Total was not profit maximizing, it was growth and shareholder value maximizing in the short term.
A merger with a top distributing BDC or OMC therefore is likely to boost distribution and product supply chain across West Africa, specifically to Niger, Burkina Faso and Togo which all significantly depend on Ghana for their oil products. BDCs and OMCs therefore provide the best opportunity for mergers and acquisitions in the oil and gas sector.

Mining
We expect a modest uptick in 2017 for mining deals to continue till the end of the year, albeit at a slow but steady pace. The sector is still suffering from the not so stable gold prices as well as the insufficient due diligence done in the past by most companies, which caused investors to take a second look at asset irrespective of how valuable they could be on the market.
The mining sector alone contributed about GHC1.35 billion to taxes, representing 14.8% of total direct taxes in 2015. Mining companies returned USD 3.1 billion representing 85% of their mineral revenue (USD3.1 billion) through the Bank of Ghana (BoG) and the commercial banks in 2015, a situation which has significant bearing on the international reserve position of BoG and the stability of the monetary system as a whole. Newmont reported annual revenues of USD 931 million in 2012, USD 919 million in 2011 and about USD 2.5 billion in three years.
Ghana’s mining sector was expected to reach a value of USD 1.83 billion in 2016, according to the Ghana Mining Report – Fourth Quarter 2012. The Report by research company; Research and Markets says the sector will increase from $1.21 billion in 2010 “as bauxite and gold production see substantial increases.

Between 2009 and 2011 the investment inflow for Ghana’s mining sector was USD 2.5 billion. Gold production increased consistently; 3.1 million ounces in 2009, 3.4 million ounces in 2010 and 3.6 million ounces in 2011 which was the highest gold production ever in Ghana. Ghana’s mining sector is the country’s leading source of Foreign Direct Investment (FDI) as records from the Minerals Commission show that FDI inflow into the mining sector in 2015 was USD 965 million. Cumulatively, the investment inflow into the mining sector from 2000 to 2015 stood above USD 10 billion. Total M & A deals from 2004 to 2016 is estimated at USD 12 billion, which represents the industry with the highest volume of M & A transactions in Ghana.
The single most prominent merger in the mining sector that increased the Ghana Stock Exchange’s capitalization by 483% was the April 2004 merger between AngloGold registered in the republic of South Africa and Ashanti Goldfields Company registered in Ghana. Subsequently, market capitalization at the Ghana Stock Exchange increased by US$7.8 billion, 433% immediately after the merger deal was finalized in 26th April 2004.
The consequence of this takeover had been beneficial across all fronts and this merger enabled the government of Ghana to receive dividend from 2004. In all, a total of US$ 15 million was paid as dividend from 2004 to 2007. The government also received 2,658,000 shares and cash considerations of US$ 5 million for agreeing to the merger. Capital investment increased tremendously to boost the Ghanaian economy: US$303 million capital expenditure was spent within 4 years of merger, well over the required UD$220 million stay-in-business capital. On the part of the shareholder, though earnings per share and returns on equity on the Ghanaian mines had fared poorly after the merger, critical analysis showed there were some gains. Since Ashanti Goldfields Company’s share exchanged for 0.29 AngloGold Depository share, implying that a shareholder's wealth appreciated by 204% immediately after the merger.
In 2007, the Government sold Ghana’s non-controlling interests of 5% to Anglogold Ashanti Ltd. The Government in January 2011 also sold the nation’s last shares of 2.5% to Anglogold Ashanti which generated an amount of US $215 million, whereas accounts of its utilization was not clearly provided.
Investors continue to be risk averse when it comes to exploring regions outside of familiar territories, more than 90% of the deals undertaken in between 2004 to 2016 so far were not targeted at exploring for new metals. Though a research by Goodman AMC shows that Ghana stands a high chance of discovering uranium.
However, the emergence of some strategic mergers into larger operations will be very necessary. Larger mining operations need to leverage their new positions to buy distressed mining assets in Ghana that will complement their portfolio. This would enable them to solidify their base in anticipation for growth in gold prices.
AngloGold Ashanti for example which is looking to sell its assets in Ghana are finding it difficult to get a buyer willing to invest in its operations due to challenges being faced by the firm. But what investors need to watch is that most of the challenges currently facing AngloGold was as a result of the Company’s lack of an in-depth understanding of the Ghanaian mining sector. Instead of the South African firm combining its foreign expertise with local expertise to achieve economies of scale The South Africa multinational instead acquired the company and made some new operational procedures that suck all the oxygen from the company. But Despite its shortcomings, two multinational miners, Barrick Resources of Canada and the Australian giant BHP Billiton, are each in deep negotiations with AngloGold’s South African owners, over buying the troubled mine.
Investors should remain cautious about investing in Ghana’s mining sector. Anticipated high-value mergers are expected beyond 2017.

Agroprocessing
There has been close to a 90% decline in overall activity in Ghana’s manufacturing sector, 2016 ended the year on a much downward trend.
M&A activity in the manufacturing industry continues to be largely supported by the agro processing category. Ghana’s manufacturing recorded a negative growth of -0.4 and -0.5% in 2013 and 2014 respectively (2016 figures). Although 2017 will likely not be without challenge and uncertainty, we believe the environment may be ripe for manufacturing deals.
Technology and digital integration into products is transforming the manufacturing sector at an ever increasing pace. In order to promote a strong deal making environment from 2017, the Government of Ghana needs to show more clarity around the Akufo-Addo administration’s policies, particularly the One District-One Factory policy, including reduced regulation and government oversight, lower income and tax rates.
While local deals (transaction by parties in the same country) continue to drive M&A activity in the sector, cross-border deals have also been increasing in size. A typical example is the acquisition of Benso Oil Palm Plantation (BOPP) by Unilever Ghana Limited in October 2003. Unilever acquired 58.5% of equity stake in the plantation in a deal worth USD 11.7 million. In this instance, Benso Oil Palm Plantation will supply raw materials, which is palm oil to Unilever for the production of goods like soap.
Benso Oil Palm Plantation Limited was incorporated on January 22, 1976 jointly by Unilever Plc and the Government of Ghana (GOG) as a private company limited by shares to produce crude palm oil (CPO) in Ghana. The company was converted into a public limited liability and listed on the Ghana Stock Exchange in 2004 after the Government of Ghana had divested its stakes in the company. Unilever Ghana Limited took over the 58% equity interest that Unilever Plc held and in 2012, Wilmar International, an Asian agribusiness giant through its African subsidiary, Wilmar African Limited acquired 77.97% of the entire issued shares of BOPP, making them the majority and controlling shareholder of BOPP.
A look at the financial performance of Benso Oil Palm Plantation Limited showed a mixed performance over the last five years in the top and bottom line indicators. The period saw a consistent growth in total revenue from GHC 19.37 million in 2010 to GHC 40.84 million in 2012 (which was the year it was acquired by Wilmar) before slipping to GHC 35.44 million by the end of 2013. Two years on after its acquisition by Wilmar total revenue grew once again to GHC 52.16 million.
Similarly, BOPP’s net profit position increased from GHC 2.67 million in 2010 to GHC 13.41 million in 2012, declined to GHC 5.81 million in 2013 and then bounced back to GHC 12.29 million in 2014 (two years after its acquisition). This signifies growth of 169.36% and 360.68% in the top and bottom line indicators respectively, over the five-year period.
The agroprocessing sector has shown promise, incorporating everything from the processing of tomatoes, to cashew etc. Companies that can provide complex technological expertise to process Ghana’s abundant raw materials, particularly cocoa will most likely dominate M & A activity with mergers not far from behind. More M & A activities are likely to be triggered where most of Ghana’s now defunct factories may become targets for acquisitions after any initial deal offer.


Key Highlight: Ghana’s Beverage Industry
The African beer market is the fastest growing in the world. It is forecast to grow at an average rate of 5% between 2013 and 2017, according to a March 2015 report by market research group Canadean.

Ghana’s beverage manufacturing sub sector is becoming very big, we forecast a tremendous amount of growth in the alcoholic beverage manufacturing sector. Most multinationals are already taking advantage through acquisition of local brewery companies; Diageo which operated as Guinness Ghana Limited (GGL) in Ghana swooped on rival Heineken International’s local manufacturing operations in a multi-million dollar deal, which was the largest acquisition in Ghana’s alcoholic beverage manufacturing sector in history.

In 1997, Guinness Plc and Grand Metropolitan Plc merged to form Diageo Plc, thereby making Guinness Ghana Limited a subsidiary of Diageo. In 2004, merger talks begun between Guinness Ghana and Ghana Breweries Limited (GBL) with the former having merged with Kumasi Brewery in January, 1998. While Heineken International was the majority shareholder of Ghana Breweries Limited (Heineken had acquired a 90% stake in ABC Breweries in 1994 and renamed the company Ghana Breweries Ltd.) at the time. The said takeover offer was launched further to Heineken’s Irrevocable Undertaking to offload its shares in GBL to Diageo Plc, the parent company of GGL. GGL had “agreed to acquire” approximately 76% of GBL. Subsequently, Guinness Ghana acquired all the assets of Ghana Breweries Ltd and officially christened the new entity Guinness Ghana Breweries Ltd.
Another major acquisition in the sector was that of Accra Brewery Limited (ABL). ABL was which was incorporated on April 1, 1975 was acquired by Overseas Breweries Limited (OBL), a company incorporated in Switzerland, which had been operating in Ghana since 1931 in return for ABL shares. OBL was the first brewery built in the European tradition in West Africa and the first non-traditional manufacturing industry in Ghana then Gold Coast. In October 1997, SABMiller Plc acquired OBL through its subsidiary, SABMiller Africa BV, and consequently ABL became a subsidiary of SABMiller Plc.
In 2011, SABMiller AFRICA BV on behalf of its wholly-owned subsidiary Overseas Breweries Limited made an offer to the shareholders to purchase for cash up to 76,822,635 ordinary shares of Accra Brewery Limited at 0.13 per share. The total amount of funds required by SABMiller Africa BV to purchase all of the offer shares for and on behalf of OBL was approximately GHC 10.0 million.
The USD 106 billion acquisition of SABMiller by AB InBev will be the third largest M&A transaction in history, and will also give the merged entity control over around one third of global beer sales this would also boost SABMiller’s local operations in Ghana and increase competition on the local market.
Ghana has become a key consumer of beer and a one of the largest beer consuming countries in the African beer market, and this is being accelerated by the growing economic momentum and a strong dynamism in the country’s formal sector.
Despite Ghana’s low per capita beer consumption by regional standards at 14.2 litres annually, this doesn’t show the true acceptance of beer. Initially, foreign beer producers had focused on the high end markets as well as middle class consumers and this gradually gave rise to locally brewed consumption. The likes of Kasapreko who had initially been an informal brewer have managed to formalize their business, hence intensifying competition between the local and multinational beer companies. The increasing income levels of many Ghanaians has moved most local brewers to formalize their operations, with close to 50% of households expected to fall under the USD 1,000 to USD5,000 bracket by 2020, up from 28% in 2015.
Beer multinationals in Ghana now produce low cost beers for the domestic Ghanaian market, and are expanding rapidly to meet demand. SABMiller alone grew its market share in to 48% up 20pp in 2010. Though growth forecast looks good, the developing local market is also improving its standards to compete effectively. Notwithstanding, SABMiller is well positioned to benefit from its AB Inbev acquisition and is therefore likely to grow its market share in Ghana.
According to BMI, beer volumes in Ghana will experience the fastest growth rate in sub-Saharan Africa region over the 2015-2020 forecast period, rising at an average rate of 14.5% y-o-y. Beer consumption in Ghana has been forecast to increase from 280.9 million litres in 2017 to 368.5 million litres by 2019. Beer consumption is also bound to increase from 16.0 per capita consumption in 2017 to 20.0 per capita consumption by 2019.
The USD 100 million upgrade to Accra Brewery Limited's (ABL) manufacturing facilities in 2015 for instance has doubled the production capacity of ABL and signals a long-term commitment by SABMiller, and now AB InBev, to help boost operations in Ghana and the wider West Africa region.
Opportunities abound and other local alcoholic beverage producers like Kasapreko acquired a USD 30 million bottling plant in 2012 and also commissioned a USD 70 million factory in 2015 to help expand its operations to East Africa and is also growing from strength to strength. SAB Miller, through its local subsidiary, Accra Brewery Limited, also continues to be a worthy competitor of Diageo’s Guinness Ghana Breweries Limited.
SABMiller’s huge access in Africa is believed to be the key driver and motivation for this merger between SAB Miller and AB InBev since SAB has a huge market in Africa. A deal of this size will make other companies sit up and take notice. The beer industry is ahead of the game when it comes to Africa. Hence, now is a particularly good time to make strategic investments in Ghana’s local beer sector given the upsurge in demand in Ghana and across SSA.
Ghana is definitely one of the most profitable and high growth regions for the beer industry in the next decade and beyond.
SAB Miller and AB InBev merger deal will encourage other multinationals in consumer facing sectors to enter the African market more aggressively and Ghana is primed to be a strong target for multinationals looking at its long history of political and economic stability as well as its huge beer consumption market.


Conclusion

Take note that, opportunities created by most deals in Ghana also generate challenges, especially for buyers based in developed markets. While they have to adapt themselves to more stringent regulation in Ghana, governance standards in their new acquisitions may not be up to standard.

Before considering to jump into a big deal in Ghana, companies or buyers first of all need to thoroughly analyze the motive behind the transaction. In agreement to this fact, we are of the view that acquisitions in Ghana should certainly focus on enhancing the capacity and expertise of a company in segments where they are not very strong yet while also aiming at the addition of key, scarce talent in industries such as high technology.
This therefore necessitates a thorough due diligence and compliance work which needs to be done before the parties close a deal. This is very imperative in order for an M & A transaction in Ghana to become successful. For instance, during the AngloGold and Ashanti Goldfields merger deal, it was also found that out of the $44 million expected capital expenditure towards feasibility, drilling and mining of the deeps project, only $19 million has been spent as at December 2008. The deeps project was the main attraction that led AngloGold to merge with cash strapped Ashanti Goldfields and due to the lack of a detailed feasibility study into the deeps project, AngloGold soon realised after the merger that they did not probably carry out enough due diligence to ascertain the existence or otherwise of the deeps reserves. Even though in the books of Ashanti Goldfields, it had classified the deeps project as 'Blue Sky' meaning not much geological testing had been done and that the existence of a massive gold reserve may only be a wishful dream. AngloGold therefore did not undertake a thorough feasibility study on what the ‘Blue Sky’ originally meant.
In order to also prevent any kind of unpredictable risk involved in acquiring local companies, buyers need to carry out a well thought through examination of their risk management and compliance procedures prior to the completion of the deal. Buyers need to have a deeper understanding of the types of liabilities they are taking on. The main reason behind this is to prevent any unforeseen surprises that would probably lead to the payment of excessive environmental fines, labour compensation agreements, late tax bills and other charges derived from mistakes or illegal acts perpetrated by the previous owners.
With somehow rampant corrupt practices spread throughout Africa, buyers need to take an attentive look at initiatives put in place to tackle bribery, corruption, human rights abuses, employment of child labour by the firms they are acquiring or from third party firms which work together with the firms they are acquiring, as well as other governance issues not directly linked to the commercial side of the operation.
Acquirers from the United States, for instance, need to always be aware of the fact that they work under Foreign Corrupt Practices Act regulations, which enable U.S. enforcers to under certain conditions allege breaches of American law anywhere in the world. A lot of underhand dealings in the acquisition process could therefore result in reputation damage.
When acquiring a company in Ghana, there needs to be a very clear focus on the compliance programs of targets companies. Especially since the cost involved could be high and there is often a lack of robust data from the seller in Ghana. This was evident during the First Rand Bank and Merchant Bank merger deal; though the acquisition never came into fruition, Rand Bank had wasted an amount of over $3 million of due diligence which cost the firm.
Most often, characteristics of some firms in Ghana that could be seen as a competitive advantage in some cases, may turn out to be toxic for buyers based abroad. The pre-deal due diligence process is therefore very vital and needs to include the assessment of exposure of the target company to anti-trust laws, data protection and privacy rules, litigation, intellectual property breaches, product liability, and so on. The ultimate thing to note is make sure that the target company has what it takes to deliver the business enhancements of what the buyer is looking for, with regards to the necessary due diligence that needs to be done in order to create value. But most importantly, companies should never overrule the importance of discipline, specifically when it comes to valuations.


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Image Credit: WSJ

Authors
Isma-il Sulaiman and Bernard Boachie-Danquah are the Founding Partners of Goodman AMC, and are both renowned strategy consultants with extensive experience on the African market.

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