• Partner

Oluwaseye Ayinla of Duale, Ovia & Alex-Adedipe talks to Craig Sisterson about mergers and acquisitions (M&A) in the time of Covid and opportunities and risks for the technology sector.

While M&A trends are usually cyclical in nature and the global pandemic has slowed such activity across most sectors, the tech market in Nigeria and wider Africa has exhibited some resilience and continues to thrive, says corporate finance and M&A expert, Oluwaseye Ayinla.

Generally, M&A activity “responds to macroeconomic occurrences, such as economic growth, deregulation, trade liberalisation, and demographic shifts in population or consumption,” says Ayinla, head of M&A and Competition Law Practice at award-winning Nigerian firm Duale, Ovia & Alex-Adedipe (DOA). “Even though the data is not perfect, if you look at activity between 2007 and 2019, you are able to see the cyclical nature in M&A trends.”

Referring to data released by S&P Capital, Ayinla notes that securities legislation enacted in Nigeria in 2007 heralded increased merger activities. Subsequently, consolidation exercises in the banking sector, phased deregulation of the power sector and changes in other sectors of the economy triggered a wave of merger activities. There were numerous transactions in 2014 and 2015, but when Nigeria dipped into recession in 2016 M&A activity likewise dipped before some level of improvement in 2018 and 2019. 

“Once there’s an improvement in macroeconomic indicators, we see an increase in M&A activities,” Ayinla says. “So what we saw in 2018/2019 was considerable improvement, showing investor confidence in the market at a general level and some decent levels of M&A.” 

However, when Covid hit the market was negatively affected and overall activity slowed again. Generally speaking, that is. One sector has bucked the downward trend.

“The tech market – financial- and security technologies as well as other technologies – actually showed some resilience or, dare I say, insulation from the effects of the pandemic,” says Ayinla. According to Nigeria’s Business Day, 82 Nigerian tech firms raised US$ 170 million in 2020, while in the first quarter of 2021 alone, five Nigerian tech firms raised US$ 202 million, thereby eclipsing the value of merger activities in the whole of 2020. “So, while in 2020 we saw a decent level of M&A in the tech sector, Q1 of 2021 alone outstrips that,” notes Ayinla.

This compares favourably with the $600 million total value of funding activities (M&A inclusive) reported in the tech sector in Nigeria for 2014 to 2019. Not only has tech M&A stayed resilient as the pandemic continued, but its value has actually exploded. With demographics often playing a role in M&A trends, Ayinla says that Nigeria’s large and youthful population likely contributed to the resilience of the tech market during 2020/21.

“A significant number [of the population] is under 35, and what you find with a more youthful population is they’ll test and use new tech products,” explains Ayinla. “There’s also been an increase in smartphone penetration, in internet accessibility, and the government pushing financial inclusion using technology. So you put all those factors together and it definitely gives the tech market some insulation from the downturn and effects of the pandemic.”

While there’s been much enthusiasm in the tech space during the pandemic, Ayinla cautions that ongoing growth will require infrastructure investment (improving internet accessibility, speed and costs), an improvement in macro-economic drivers and favourable regulation not just from national government, but also across the wider region under the roll-out of the African Continental Free Trade Area (AfCFTA).

“We’re all waiting for the AfCFTA Competition Policy to come out, and what that will say for M&A will be quite interesting. It seems in the next couple of years we’ll have a very dynamic and interesting M&A market. Not only for Nigeria but for the entire continent.”

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