COVID-19 forces companies into mergers to stay afloat
By Seyiga Abdullswabul
The “If you can’t beat me, join me” maxim seems to have been embraced by a growing number of companies in the recent past in the Ugandan economy.
In a bid to beat the market and to pursue bigger market plans, companies are merging and ascending to unbeatable hybrids in Uganda market today.
As cited by the Economic Policy Research Centre, it all started with 8 Miles, a London-headquartered equity fund, which announced that it had acquired a 42 per cent stake in Orient bank Uganda.
This was followed by other mergers such as Manji Holdings’ the owners of Yo Kuku who merged with South Africa’s RCL food’s Enkoko to form a new firm, HMH Rainbow, with both sides describing it as the “biggest chicken firm in the region.”
RCL Foods will own 33.4 per cent shareholding in the new firm, the company announced at the start of this month. The deal comes hot on the heels of a host of other mergers and acquisitions that have swept across the country .
Another merger happened between Commercial Bank of Africa Limited (CBA) and the NIC Group PLC.
In June, Old Mutual finalised the acquisition of the majority stake in UAP Holdings, the owners of UAP insurance, pushing its stake to 66.7 per cent.
Old Mutual, which is originally South African, is listed on the London and Johannesburg stock exchanges. It also took over UAP businesses in Tanzania, Kenya, and Rwanda.
It is evident that companies realise that the only way they can strengthen their market presence in the aftermath of the devastating COVID-19, is through mergers.
I predict more mergers in the near future as a result of the financial unrest and instability caused by the COVID -19 pandemic.
This is largely due to the fact that many businesses have lost balance due to the appalling poverty that has engulfed communities and eroded the customer bases of most companies since the sales of their products is dependent on the incomes of its customers.
Merging during these times could be the long awaited move as it will not only strengthen the merging companies locally but also put them in position to book stature on the international market.
Timing of Due Diligence:
Whereas many companies carryout due diligence searches including but not limited to reviewing registrations, contracts, finances and customers to reduce the risks involved in conducting such transactions, the notion of time has been overlooked.
It should be another risk-avoiding factor that a move is made at the right time, despite that all other due diligence factors have been accomplished.
The prominent American investor Warren Buffet refers to this as “Noah’s rule”. He adds that “if you predict rain, build an ark”.
In his 2001 Letter to Shareholders of Berkshire Hathaway Inc, Warren Buffet said that he violated the Noah rule: Predicting rain doesn’t count; building arks does.
He added that he consequently let Berkshire operate with a dangerous level of risk–at General Reinsurance Corporation in particular.”
Determining the time to make a decision is a very important factor as it will impact both business success and risk avoidance.
The writer is a Managing Partner, Lavoix Advocates Uganda, LLB (IUIU-KC), Dip LP (LDC) firstname.lastname@example.org