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How mergers and acquisitions are changing business landscape
March, 21st 2016

The desire to gain controlling market share in an increasingly competitive environment is now compelling most multinationals to buy off smaller firms. In this report Ibrahim Apekhade Yusuf examines the pros and cons

In the view of Dare Ogunyombo, a brand/PR specialist with Brooks and Blakes, for most big businesses, the received wisdom is that attaining success is just the beginning of a journey of discovery, little wonder that businesses who understand this hard truth have continue to reinvent themselves in order to remain relevant both in the present and far into the future.

The foregoing anecdote becomes apposite in describing the craze by many a company, especially big businesses operating whether in the local or international sphere to grow their brands albeit through the mergers and acquisitions of smaller firms.

Latest mergers & acquisitions

Many big businesses in Nigeria in recent times, whether in the telecoms, beverage, pharmaceuticals, manufacturing, ICT, aviation to mention just a few have had to buy off other smaller firms in order to gain traction and control of the market share.

A leading manufacturing company, Vitafoam Nigeria Plc has commenced a new initiative to reduce operating costs and boost shareholder value through its newly established subsidiary.

Addressing the elated shareholders at the company’s Annual General Meeting (AGM) in Lagos, the Chairman, Dr Dele Makanjuola explained that the ongoing inclement operating environment had forced the company’s Board and Management to embark on cost saving initiative in order to sustain the company’s competitive edge.

Makanjuola who reviewed the current challenges facing manufacturing firms in Nigeria noted that Vitafoam was able to remain profitable due to the prudent approach towards management of human and material resources, said the foam business is operating in a very competitive environment. There are over 300 manufacturers. It is stressful to operate in the foam industry.

“We have almost concluded plan to commence production of oil filter in our new subsidiary. As for Vono Products, we shall keep the brand. We have gone to the Corporate Affairs Commission to ensure that the brand is not taken away,” Makanjuola said.

The Coca-Cola Company and Tropical General Investments Group (TGI Group) – the holding company of Chi Ltd, Nigeria’s leading dairy and juice company only recently announced a binding agreement for The Coca-Cola Company to acquire an initial minority equity shareholding in Chi Ltd. The agreement creates a strategic relationship between two beverage industry leaders within Africa’s largest economy that together serve Nigeria’s most popular sparkling soft drinks, juices, value-added dairy and water beverage brands.

Within the agreement, The Coca-Cola Company has made an initial 40 percent equity investment in Chi Ltd and intends to increase ownership to 100 percent within three years, subject to regulatory approvals, while working on other long-term commercial structures.

“For more than 30 years Chi’s leadership has built a greatly admired business that has quickly grown to become Nigeria’s leading producer and distributor of value-added dairy and juice products and we are delighted to enter the next phase of our growth journey together,” said Nathan Kalumbu, President, Coca-Cola Eurasia and Africa.

“Coca-Cola and Chishare the same commitment to Africa, to investing in our operations and to continuous innovation and our relationship will allow us to continue to provide Nigerian consumers the No. 1 beverage in each of the categories we serve.”

“We strongly believe in this journey we are starting with The Coca Cola Company. The relationship will allow us to expand our regional footprint and product portfolio. We stay firmly committed to growing our investments in the Nigerian economy, increasing employment and local content while supporting the communities we operate in. Chi will continue to provide its consumers with innovative products in the dairy, juices and snacks categories,” said Cornelis Vink, Chairman of TGI Group and Chi Ltd.

“Coca-Cola has been investing in Nigeria for more than 60 years and today’s announcement represents the latest significant step in our commitment to growing our business and providing trusted beverage brands for Nigerian consumers and communities,” said Kelvin Balogun, President of Coca-Cola Central, East and West Africa.

MTN Nigeria recently completed the acquisition of Visafone, the only surviving Code Division Multiple Access network in Nigeria’s telecommunications industry.

Justifying the need for the acquisition, MTN Executive, Amina Oyagbola said the acquisition of Visafone was in line with a continued commitment by MTN to improve the quality of broadband services for its subscribers.

She said the acquisition, which sought to leverage resources for service enhancement, was also reflective of the company’s concerted efforts to deepen the growth and roll out of broadband services across the country.

According to her, the acquisition of the CDMA network is in support of the National Broadband Plan for the benefit of Nigerians.

“As we work to maximise our data capabilities towards achieving broadband of international quality, our objective is to ensure that Nigerians experience a boost in the quality of broadband internet services,” she said.

The acquisition of Visafone, she stressed, “highlights MTN’s commitment to Nigeria. More capacity will facilitate enhanced product/service offerings and experience in the data space to the delight of our valued customers.

“Voice is still King. However, data is becoming increasingly important in our everyday lives and our energies are focused on enhancing data and internet services to the benefit of our customers and the country at large.”

Visafone is one of the leading CDMA/ICT companies in Nigeria offering a number of services, which include voice, high speed data (3G), internet and other Value Added Services.

Echoing similar sentiments, founder and retired Chairman of Visafone Communications Limited, Jim Ovia said the business deal would ensure the continuity of the Visafone trademark broadband, enterprise solutions and voice services to its customer base.

According to Ovia, “The advent of mobile telecommunication services into the country over a decade ago has impacted Nigeria positively and created a new industry powered by technology and innovation. Looking back, we have recorded progress and achievements that have positively impacted the growth of other sectors such as banking, e-commerce and entertainment. We recognise that the industry holds greater potential that can further catalyse Nigeria’s economic growth generally.”

Last year, Olam Nigeria said its Singapore-based holding company, Olam International Limited has acquired Amber Foods Limited for $275 million, which is about N8.4150billion.

The deal was consummated through Olam’s subsidiary Quintessential Foods Nigeria Limited who are owners of the wheat and pasta manufacturing assets of BUA Group in Nigeria.

The BUA Group, is a diversified foods and infrastructure business group in Nigeria, it’s among the top five wheat millers in the country with wheat milling and pasta manufacturing capacities of 3,760 and 700 metric tonnes per day (TPD) respectively.

The assets acquired include two wheat mills and a pasta manufacturing facility in Lagos, a mill in Kano, and a wheat mill and a pasta manufacturing plant under construction in Port Harcourt. The wheat milling sector in sub-Saharan Africa has been an area of investment focus for Olam since 2010 when it acquired Crown Flour Mills, CFM in Nigeria.

Since then, Olam has expanded Crown Flour Mills capacity and set up milling operations in Ghana, Senegal and Cameroon.

Accordingly, this acquisition will strengthen Crown Flour Mill’s position as the number two wheat miller by sales volume and make it a leading pasta player in Nigeria.

In the brewery segment of the market, Guinness Nigeria boosted its product portfolio with the recent acquisition of the distribution rights to United Spirits Limited’s brand in Nigeria.

The deal means Guinness Nigeria have the rights to distribute McDowell’s’, a mainstream spirits brand of United Spirits Limited (USL) in Nigeria.

United Spirits Limited (USL) is a subsidiary of Diageo plc which is a global leader in beverage alcohol with an outstanding collection of about 22 brands across spirits, beer and wine categories.

In 2013-14, Diageo plc acquired a 54.8% shareholding in United Spirits making India one of its largest markets. This transaction became effective on 1st February 2016.

With the introduction of MCdowell’s, Guinness Nigeria’s product portfolio has now been boosted the number of its alcoholic brands.

In a move that will further seal its place as a payments juggernaut in the African continent, Interswitch just acquired Vanso for a total value of $50million about ¦ 15 billion.

A reliable source has confirmed the deal adding that Vanso initial asking price was in the region of $80 million. The deal will see Interswitch acquire all Vanso’s assets including management staff.

Vanso provides mobile and internet solutions for Nigerian banks. It has been doing so for almost 13 years. Virtually every Nigerian mobile banking app is based off Vanso’s solution. With this acquisition, Interswitch will be able to leverage Vanso’s robust technology and relationship with local banks to further expands its reach within the local FinTech sector.

Commenting on the business deal, Stanley Mabiakwu, an ICT expert said, everything Interswitch has done over the past year — including the establishment of the N10 million ePayment Growth fund, which saw ACE and SlimTrader as beneficiaries — has a lot to do with the potential billion-dollar IPO.

“If everything works as planned, we could well be seeing the first billion dollar Nigerian tech company before 2016 runs out.”

Nigeria not alone

The craze for mergers and acquisition by corporate firms is gaining ground worldwide.

In April 2012, Facebook CEO Mark Zuckerberg did the unthinkable. With the company about to begin its IPO roadshow, Zuckerberg made a surprise acquisition of a two-year-old photo-sharing app called Instagram.

What’s more, Zuckerberg paid out the nose for it, shelling out $1 billion for an app that had 13 employees, zero revenue, and which most of the buttoned-up investors that would attend Facebook’s IPO roadshow had probably never heard of.

The deal caused immediate concern. Some considered the deal a sign of Zuckerberg’s impulsive nature and questioned whether the hoodie-wearing, then 27-year-old founder was ready to lead a publicly held corporation.

It might have been one of the smartest things Zuckerberg ever did.

Facebook wouldn’t disclose exactly how much revenue Instagram generated, and Instagram’s contribution to Facebook’s top line is still just getting started.

But it’s starting to have an impact. Facebook COO Sheryl Sandberg noted on the earnings conference call that 98 of the top 100 Facebook advertisers now also advertise on Instagram.

Barclay’s Paul Vogel pegged Instagram’s Q4 revenue at $276 million, and now projects that Instagram will “eclipse” $1.3 billion in 2016.

In other words, the big revenue upside that Facebook just wowed Wall Street with is only going to get better next year.

Instagram, which now has 400 million users, is helping Facebook stay relevant and “cool” with the younger generation.

In an unprecedented merger that will create the world’s largest pharmaceutical company, Pfizer Inc. and Allergan announced last Monday that they’re merging in a deal worth up to $160 billion.

The new company, Pfizer Plc, will be the world’s largest drugmaker, make drug products ranging from Viagra to the Prevnar pneumonia vaccine to Botox — but it will be doing so with its official headquarters in Dublin, Ireland, where Allergan is based and the official tax rate is lower than in the U.S.

The drug company tie-up is the biggest deal in what’s been a big year for mergers and acquisitions.

Besides health care and pharmaceuticals, the wave of deal-making has also swept through airlines, transportation, real estate, oil and gas, mining among others.

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