Ghana: A Bullish M & A Market

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.

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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 between 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 between 2004 to 2016, and is expected to double to all-time records of over USD 32 billion between 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 between 2004 to 2016, while telecom sector overtakes the financial sector as the sector with the highest grossing inbound value.

Total M & A deals between 2004 to 2016 in the mining sector is estimated at USD 12 billion, which represents the industry with the highest volume of M & A transactions in Ghana. Despite this structural shift, the aggregate value of financial services mergers and acquisitions (M&A) only reached USD 215 million between 2004 to 2016. Within the same period, the M & A deals carried out in the telecom sector is estimated at USD 1.92 billion. The pharmaceutical sector represents the lowest with $25 million, this reflects how the volume of pharmaceutical deals in Ghana has remained relatively flat though it has great potential.

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 between 1990 to 2008. Some of these includes, 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 titled ‘The Economic Impact of Ghana’s Election in 2017’, Goodman AMC can somehow confidently forecast that after Ghana’s main presidential election, it’s new President is likely to speed up strategic transformation in terms of industrial change with his One District One Factory policy, and 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 is only going to increase 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 a 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, 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 USD 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 USD 500 million hospitality fund. Our full report on the Private Equity transactions in Ghana is available here.

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 USD 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 as well, and reaching a possible 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 2017 and beyond. And is likely to pave the way for more future mergers of not just mobile service providers but also between smaller 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.

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.

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