Questions to consider:
- Are we selecting acquisition targets effectively?
- How do we ensure consistent and efficient delivery across Africa?
- How do we improve cost-efficiencies across a number of African countries?
- What organizational structure should we adopt to ensure long-term success?
- Have we got an operating model that will enable us to move with agility and speed?
- How do we successfully replicate our business model across Africa?
- How do I make my investment tax-efficient?
Consistent execution across all markets to deliver reliably to customers and consumers, drive down costs and reduce risks will help make businesses more likely to achieve long-term operating success
Summary: You need to adjust your investment approaches and operating models to meet local market conditions and regulatory requirements. Yet, remain consistent with reliable products and services, low costs and reduced risks.
Getting into the market
Many consumer products companies begin their involvement in Africa via a third party distribution relationship. In the long term, if local rules allow, some companies establish a wholly owned local presence.Whether companies ease into the market with a local partner or jump in alone, companies have a hard time finding valid data on which to base business decisions.
Some organizations have a standard approach to global approach to deal evaluation, often driven by the Group treasury function, which applies rigorous financial thresholds. In our experience, such an approach is not always successful in Africa. Why? Because, as in many emerging markets, there will always be a subjective aspect to deal pricing and what one leader may see as "transformational" may be interpreted less favorably by others.
Disagreement on value highlights the vital importance of the integration process in any merger or acquisition.
Harnessing five steps for success
We believe there are five steps that are critical for successful acquisitions in Africa:
- Carefully select the right local partner/target - Understanding the equity story, the shareholding structure in what may be a family business, the M&A experience of the shareholders, management capability and integrity are critical for would-be global acquirers.
- Analyze available data - Global businesses will need to devote resource to analyze the inevitable gaps between local GAAP and IFRS/US GAAP. This is likely to require a full audit including not just financials but legal and IP rights, tax, environmental, manufacturing, HR and ethical practices. This provides a base for assessing whether business plans are reasonable and for building a new "combined" business plan. Companies can also bridge the data gap by watching or even partnering with large donors or charities so they can gain insights into the government’s development agenda, and learn more about consumers’ day-to-day lives.
- Value the company - In our experience, companies should favor discounted cash flow (DCF) approaches rather than relying exclusively on multiples, and be prepared to build several scenarios to reflect economic and political uncertainty as well as market volatility. The risks in cash flows (or discount rates) also need to be assessed, plus inflation risks before companies can get comfortable with the bridge between the stand alone value and the potential price.
- Negotiate with stakeholders - Deal pace in emerging markets is often slower and it is essential to negotiate with all the major stakeholders, all the time, both to maintain progress and to build the relationships which will be so essential to the future success of the venture.
- Integrate and operate the company - Securing productivity improvements and retaining existing clients will be top early goals - and both will depend on getting local staff on side and making local management accountable.
Africa is a unique consumer products market and businesses need to organize themselves accordingly. Businesses are starting to evaluate and change their old models to consider which activities they can:
- Keep in market or put above market in a regional hub
- Perform in-house or outsource
Look at two early targets: finance and supply chain. These areas give companies opportunities to reduce headcount, minimize operating costs and maximize coverage.
Additionally, companies are exploring opportunities for collaboration. Where it is not considered the basis of competitive advantage, we are starting to see companies considering how they could cut costs by pooling activities in areas such as payroll or procurement. However, companies should be prepared to help local partners with their credit and cash-flow issues. Doing so has rewards and risks. The reward is a stronger partnership. The risk is an increased operating risk for the lender.
Managing the tax charge
A "one-size-fits-all" approach to tax compliance and planning is not a strategy that will work in emerging markets. Instead, companies need to adapt their approach for each country or region to ensure an optimal model that reduces the overall tax charge to the global business.
- Reducing direct tax in the local emerging markets - Take advantage of tax credits, holidays or lower rates
- Reducing indirect taxes payable in the local emerging market - Factor import and export taxes, designed to protect the local market, into your decision making to minimize overall supply chain costs
- Locating global functions for maximum tax efficiency - Realize substantial recurring gains by applying a tax efficient supply chain management (TESCM) lens to the opening, closure, location and structuring of centralized supply chain functions
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