Distressed sales power local mergers & acquisitions

Distressed sales have been projected to power company mergers and acquisitions in Kenya for the remainder of 2022.

According to an analysis of East Africa merger and acquisition (M&A) Activity by consultancy Deloitte, the prevailing tough economic environment is set to drive sales in Kenya even as M&A Activity registers a general slack in the EAC.

“If the prevailing operating challenges are not addressed, foreign-driven transactions are expected to dip further. Notwithstanding, the increase of distressed businesses requiring buy-out, bolt-on acquisitions, or fresh capital injection is expected to increase the number of local M&A deals,” Deloitte stated.

The combination of after effects of the COVID-19 pandemic, high inflation and the slowdown occasioned by the staging of the August 9 General Election has contributed to the stay of a deplorable operating environment in the year to date.

Already completed M&A activity in 2022 mirrors the contribution of distressed sales across various industries.

For instance, Equity earlier this month announced it had entered a binding agreement to purchase part of troubled Spire Bank asset and liabilities helping stomp on a potential bank failure.

Additionally, the banking sector has seen the buy-out of Key Microfinance and Century Microfinance Bank by Mauritius based micro-lender LOLC and Branch International respectively.

In the hospitality sector, 680 Hotel and Crowne Plaza have been sold to Maanzoni Lodges and Qatar based Kasada Hospitality Group.

M&A Activity this year has even touched on the education sector with Braeburn Schools Limited set to acquire peer Hillcrest International.

According to research by Deloitte Kenya recorded 13 mergers and acquisitions deals out of 17 deals in the region last year.

Uganda had two M&A deals while Tanzania and Rwanda had one deal each with Ethiopia recording no M&A deal in 2021.

In 2020, Kenya had 15 M&A deals out of 25 deals across East Africa.

Deloitte lists challenges in conducting due diligence on target companies, under-developed potential targets, difficulty in pricing deals in an uncertain market and regulatory framework as roadblocks to M&A activity in the region.

Previously, mergers and acquisitions in Kenya have been driven by industry consolidation with business having looked to grow in scale by acquiring rivals.