Kenya a major source of cash for firms eyeing mergers in bloc

Kenya is the largest source of revenue for firms carrying out mergers and acquisitions within the regional bloc, Comesa.

Data from the Competition Commission for the Common Market for East and South Africa (Comesa) notes that between January 2013 and February this year, companies seeking approval for mergers and acquisitions had a combined turnover of Sh1.1 trillion ($12.5 billion). About 21.6 per cent, or Sh229.4 billion ($2.7 billion), of this revenue came from operations in Kenya.

The amount points to a positive economic performance which is in turn fuelling mergers and acquisitions in the local corporate scene, analysts say.

“Mergers and acquisitions are a sign of maturity in an economy. Businesses are interested in coming into Kenya or consolidating their position,” said Mr Johnson Nderi, ABC Capital manager of corporate finance and advisory.

After Kenya, Ethiopia, Eritrea and Egypt are the next largest sources of revenue for firms that have notified the competition commission of their plans to transact consolidations and takeovers since January 2013.

Since the commission came into force last year, it has processed 22 notifications relating to mergers “and other forms of acquisitions” and approved 10 of them.

In total, the commission estimates that the value of the transactions approved so far is Sh86.32 billion ($1 billion). From this, about Sh647.4 million ($7.5 million) has been collected in merger filing fees.

According to Comesa rules, the levy is supposed to be shared on a 50-50 basis with antitrust regulators in nations where these firms operate. Therefore, during the period under review, the Competition Authority of Kenya accrued Sh26 million ($302,825) in merger filing fees.

As compliance with Comesa antitrust regulations grows and if the economies in the bloc continue to grow, the competition commission says the value of transactions will rise in coming years.

“The rate of mergers and acquisitions taking place in all the Comesa member states is an indication of attractiveness of investing in the common market. This is so because mergers now represent the most favoured rule for investing in Africa,” reads part of a Comesa council of ministers report released last week.

HIGH PROFILE MERGERS

Kenya has witnessed a number of high profile mergers and acquisitions involving foreign investors recently.

Last year, cosmetic multinational, L’Oreal, acquired the business interests of local firm, Interconsumer Products Ltd, the makers of Nice & Lovely.

In the technology sector, the Somen brothers sold their stake in Access Kenya to South Africa’s Dimension Data while Liquid Telecom bought struggling Kenya Data Networks. Dubai’s Al-Futtaim recently completed buyout of troubled auto dealer, CMC Motors.

Nigeria’s GTBank entered Kenya by acquiring 70 per cent stake in Fina Bank while Old Mutual bought into deposit-taking microfinance Faulu.

“The financial sector in Kenya has recorded impressive growth over the decade attracting multinational and international banks… some have opted to set up greenfield operations while others have chosen to acquire existing financial service providers. This trend is expected to continue,” noted Mergers and Acquisitions Review journal in August last year.

It is curious to note that the competition commission was not notified about any of the above mergers. This is a reflection of the low level of compliance with the regional antitrust body. Some of the laws have not been domesticated in most Comesa partner states.

Closer home, a growing number of Kenyan multinationals eager to enter regional markets are also using mergers and acquisitions as an expansion model. For instance, In moving to Uganda, Equity Bank acquired a microfinance company in the country.

On its part I&M Bank has expanded into Mauritius, Rwanda and Tanzania by buying into existing companies.

In the hospitality business, Artcaffe, a local restaurant chain, has bought interest in its rival, Dormans, to cement its market position in Nairobi.

Faced with increased activity, the Competition Authority of Kenya (CAK) is overhauling its processes. Last year, the authority said that it would start levying a fee for merger filing this year.

The CAK has also been empowered by the Treasury to compile a report that will be used to weed out regulations that compete with its role of checking anti-competitive behaviour in the country.

The CAK has sometimes found itself in the battle for supremacy with other sector regulators. The Comesa Competition Commission is also engulfed in a similar war. Its operationalisation last year sparked confusion in the bloc with stakeholders questioning whether its powers superseded those of existing national regulators.

In the report released last week, the commission indicates that it is reviewing some of the controversial regulations with technical support from the World Bank and the US Federal Trade Commission.