Africa Is Looking Like a Dealmaker's Paradise

For much of the past decade, Asia has been the go-to continent for companies interested in tapping into fast-growing economies. Now, Wal-Mart Stores' (WMT) agreement on Sept. 27 to buy South African retailer Massmart Holdings for $4.6 billion may signal a shift toward Africa as another dealmaking destination for multinationals. Besides the Wal-Mart acquisition (the U.S. retailer's largest in more than a decade), HSBC Holdings (HBC) is in talks to buy a controlling stake in Nedbank Group, South Africa's fourth-largest bank, and Japan's Nippon Telegraph & Telephone (NTT) is buying Africa's biggest technology company, Dimension Data. In all, more than $15 billion in deals have been announced across Africa since July.

Big purchases like Wal-Mart's "were a wake up to the rest of the world that Africa is popping up on the radar screens," said Aly Khan Satchu, a Nairobi-based independent investment analyst. Adds David Shapiro, head of Sasfin Holdings' securities unit in Johannesburg: "Any deal is possible."

A growing number of companies from the U.S., China, Japan, and Britain are eager to tap the potential growth of a continent with 1 billion people—especially given the weak outlook in many developed nations. (On Sept. 21 the International Monetary Fund raised its 2010 growth forecast for South Africa to 3.2 percent, from 2.6 percent.) Meanwhile, African governments are luring investments from Chinese companies seeking to tap the world's biggest deposits of platinum, chrome, and diamonds.

The Wal-Mart deal has drawn attention to the African retail sector. South Africa's Shoprite Holdings, the continent's largest food retailer with more than 1,000 stores in 17 countries, and Pick n Pay Stores could now draw bids from big European retailers Carrefour or Tesco, figures Stephen Carrott, a Johannesburg-based analyst at Macquarie Group. Shoprite, which has 124 supermarkets on the continent outside South Africa and plans to add another 20 in Nigeria over the next two years, is an "excellent" potential acquisition, he says.

Another company in the spotlight is Bidvest, which gets 57 percent of its revenue from southern Africa. With businesses ranging from auto dealerships to financial services operations, "Bidvest is a prime target for African growth," says Wayne McCurrie at RMB Asset Management in Johannesburg. Simon Hudson-Peacock, head of specialist equities at Cape Town-based Cadiz Asset Management, says Bidvest's food and catering assets could catch the attention of an acquirer such as Sysco (SYY).

Barloworld, which sells machinery made by Caterpillar (CAT), is "nicely exposed to Africa," says McCurrie. He adds that South Africa's largest food company, Tiger Brands, is a "good play" for international companies with the view that people spend more on food as their nations get richer.

With as much as a third of Africa's population carrying mobile phones, analysts believe companies such as India's Bharti Airtel will seek other markets to gain a foothold. Bharti this year spent $9 billion to purchase the African assets of Kuwait's Mobile Telecommunications, giving it access to 15 African markets, after failing in merger talks with South Africa's MTN Group, the continent's largest mobile-phone operator.

Foreign companies likely will rely on South Africa, the continent's biggest economy, as a springboard into markets such as Kenya and Nigeria. South Africa is like the "head office for the rest of Africa," Shapiro says.

The bottom line: In the wake of $15 billion in African takeover deals since summer, more global companies are expected to buy into the continent.

With Eric Ombok

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