Baker McKenzie’s latest quarterly Cross-border M&A Index showed that there were no inbound technology deals in Africa in the second quarter of 2017. This is in comparison to global results, which noted a high volume of technology deals in the first half of 2017. Globally, besides H1 2016, the number of cross-border technology deals was higher in H1 2017 than in any post-crisis half-year period.
Morne van der Merwe, Managing Partner at Baker McKenzie in Johannesburg, explains, “Africa has several technology hubs, including one in Cape Town, South Africa and the development of technology in the banking and finance sector, for mass usage on the continent, is well advanced. A positive explanation for there being no inbound deals in this sector in Q2 2017, is that this is not due to lack of IT development in Africa, on the contrary, it is because IT companies are structuring their operations in a way that allows them to enter into partnerships offshore and bringing their operations into Africa through licencing arrangements.
Technology tied with Business Services was a top target industry for Africa’s outbound cross-border deals by volume with a total of three deals for the quarter (20% of total). In terms of deal value, the Financial Services sector led slightly with USD 535 million or 35% of total deals. Technology deals came in close second, accounting for USD 510 million or 33% of total outbound deals from Africa.
Van der Merwe notes that an increase in development in African telecoms industries, as well as the opportunities presented by a rapidly developing financial services sector, remain key drivers of outbound investment activity in Africa. The growing financial services sector has also seen domestic banks make significant investments in technology, including in offshore companies. As discussed, the increase in outbound deals in the technology sector also points to African technology companies looking to base their local operations offshore.
Globally, in 2016 there were 787 cross-border deals in the technology sector, an increase of 33 on 2015 and a post-crisis record. Value also hit a post-crisis high of US$187.7 billion in 2016, a 78% increase over 2015.
While cross-border deal activity in the technology sector slowed slightly in the first half of 2017, down 0.7% in volume and 17% in value year-over-year, the volume of deals was higher than all other half-year periods, except for the first half of 2016, and deal value was higher than all half-year periods between 2009 and 2014. The US has been the most targeted and acquisitive country over the past two years.
“There will definitely be more moonshots given the cash the major tech players have,” said Matthew Gemello, head of Baker McKenzie’s North American Corporate & Securities practice. “It wouldn’t be surprising if another major tech player buys into an industry that is not on anyone’s radar screen.”