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Kenya Ranks 4th For African Mergers, Acquisitions, Part 3 of 3

Kenya Ranks 4th For African Mergers, Acquisitions, Part 3 of 3

This article is part three of a three-part series featuring the top four African countries for mergers and acquisitions.

Kenya has been ranked as Africa’s fourth most sought-after country for mergers and acquisitions, highlighting the attractiveness to foreign investors of East Africa’s leading economy.

Kenya ranked fourth after South Africa, Nigeria and Ghana, according to the Deal Drivers Africa Report published by Mergermarket — a U.K.-based media company that is part of the Financial Times Group — in collaboration with ENSafrica and Nedbank Capital. The report was compiled from responses by 100 mergers and acquisitions practitioners from the continent.

Respondents said mergers and acquisitions in Kenya were particularly attractive in the consumer and the information technology sectors — a sharp contrast to most African countries where minerals, gas and oil were the leading draw for M & A.

“The deals in Kenya are mostly in the non-traditional sectors … they have been visible in areas such as consumers, beauty as well as technology,” Vinjeru Mkandawire of Mergermarket told AFK Insider. “These types of deals have made Kenya stand out in the continent,” she added.

Some of the most prominent deals of 2013 in Kenya include Dimension Data Holdings – a South Africa-based provider of IT solutions and services. It bought Access Kenya for $44 million in May.

AccessKenya is an IT solutions and wireless ISP provider with nationwide reach. After the sale, it was forced to delist from the Nairobi Securities Exchange.

Another major deal in Kenya in 2013 involved L’Oreal South Africa’s acquisition of Interconsumer Products Ltd., a Kenyan firm that manufactures personal care and beauty products. The deal was valued at $24 million.

VLCC Healthcare, an Indian health and wellness company, plans to invest about $21.4 million in Africa by 2015.

The firm kicked off this campaign in September by entering into a partnership deal with one of Kenya’s top tycoons – Naushad Merali.

Analysts say that even if mergers and acquisition deals in Kenya have mostly been in the “unconventional” sectors, the discovery of oil and gas deposits could change all that.

“Depending on the commercial viability of the oil finds, we could see Kenyan deals start to resemble those in Mozambique which was also not very active in oil-related deals until the commodity was discovered,” Mkandawire told AFK Insider.

Two oil exploring firms — Tullow Oil and Africa Oil – formed a partnership and announced five successful oil finds in Northern Kenya, raising the country’s profile.

“Kenya already ranks highly thanks to non-traditional sectors, compared to the top three. It is safe to say that it will rival the first three cited by Mergermarket once oil production begins,” said Nicholas Kitonyi, a financial writer at Seeking Alpha, in an AFKInsider interview.

Each find not only inches Kenya closer to joining the coveted league of oil producers but also makes it an irresistible destination for investors who are keen on getting a slice of the revenues expected from the resource.

“The energy sector has gained tremendous value and foreign investors are flocking in to acquire energy support so that they can gain access to the energy resources available,” a South Africa-based head of corporate development said in the report.

The Competition Authority of Kenya plays a role in partnerships and mergers. Its job is to ensure they foster a competitive environment.

In 2013 the authority said it processed more than 91 filings for mergers and acquisitions — a promising number it says can only grow in coming years.

“We are bringing in a system that will screen the value of different mergers so we do not have to take too much time processing those deals that are below a certain threshold,” said Wang’ombe Kariuki, director general of Kenya’s Competition Authority, at a press conference attended by AFKInsider.

Mahesh Acharya, a partner at Kenyan law firm Kaplan & Stratton, told AFKInsider that his firm submitted 15 applications for mergers and acquisitions to Competition Authority of Kenya in 2013; 13 were approved within 60 days.

But even as foreign investors are buying into Kenyan businesses, several cash-rich local firms are stepping up as they look to diversify their revenue streams.

Some of these companies include Scangroup and Unga Group, which recently bought 40 percent of Unga Millers (Uganda) Ltd.

But merger and acquisition rules vary from country to country in Africa, and lack of a unified process could be hindering some deals, according to the Competition Authority of Kenya.

“We need to sit down with the authorities from countries such as Uganda and Tanzania and come up with synchronized rules that will mitigate the effects on businesses expanding in the region,” said Kariuki.