There were no cross-border initial public offerings (IPOs) on African exchanges in the first half of this year, multinational law firm Baker McKenzie’s ‘H1 IPO Snapshot: Unfolding Trends for 2021’ report shows.
However, the continued global demand for special purpose acquisition company (SPAC) IPOs reached African shores in the first half of the year – with a cross-border listing from a South African SPAC issuer – African Gold Acquisition – into the NYSE.
Globally, however, Baker McKenzie’s analysis shows that the continued global demand for SPAC deals, as well as current high liquidity and investor enthusiasm, caused capital raising to surge to new highs in the first half of 2021, with the bulk of companies preferring to list their IPOs locally.
Globally, 1 263 deals valued at $294-billion are expected to be completed by June 30, with domestic IPOs accounting for 77% of all listings during this time.
“Issuers and investors in Africa are waiting for economic and legal certainty and effective regulation to be implemented, combined with the need for deeper liquidity, before they go ahead with capital raising on the continent.
“It is also worth noting that the region tends to lag the global pattern by a few cycles, so we could see a similar rising demand for African IPOs in future years, possibly boosted by the launch of the African Continental Free Trade Area at the beginning of this year,” Baker McKenzie Africa head Wildu du Plessis comments.
Regarding the SPAC listing by African Gold Acquisition, Du Plessis explained that SPACs are formed to raise capital through IPOs, with the capital raised then used to acquire existing companies (or invest in existing businesses) the identities of which are not disclosed or even known at the time of the IPO.
Even though some indication is given at the time of the IPO as to which industries will be targeted, investors in these SPACs are essentially asked to invest in a somewhat uncertain future.
The African Gold Acquisition has noted it could potentially target any industry, but it will mainly focus on target companies with operations in the gold mining sector.
African investors and issuers with interests in the mining sector in Africa will be watching this SPAC closely, with the possibility that this could ignite a growing trend for this type of capital raising in Africa down the line, Baker McKenzie says.
Du Plessis explains that while cross-border IPOs are currently not used as a way to raise capital on the continent, the next few years could possibly see increased capital raising activity for companies in industries particularly hard hit during Covid-19, including hospitality and transportation.
The technology sector is also expected to dovetail into life sciences, and this could result in a move towards capital raising via IPOs for technology companies with operations in Africa.
New and innovative technologies continue to emerge at an unprecedented pace, expedited by Covid-19 and the need to digitally innovate business operations to survive in a virtual environment could boost regional capital raising transactions, the analysis indicates.
“Further, no matter where businesses are in the world or what industry they operate in, environmental, social and governance (ESG) has become one of the hottest topics for businesses, their boards, their customers and their employees.
“While in previous years, some viewed the inclusion of ESG elements to be at the expense of returns and efficiency, among other things, this has rightly shifted to viewing ESG strategy as a prerequisite to business success. ESG is fast becoming an essential element for successful transactions in Africa,” Du Plessis says.