‘High borrowing costs threaten Africa’s mergers, acquisitions’

High borrowing costs and limited access to flexible financing structures are threatening mergers and acquisitions across Africa, including Nigeria, despite strong corporate appetite for expansion, Standard Chartered has warned.

The bank disclosed this in a statement, quoting its Africa Chief Executive Officer and Head of Coverage, Dalu Ajene, who called for a rethink of acquisition financing to unlock the continent’s next phase of corporate growth.

Ajene spoke at a strategic roundtable on “Scaling Acquisition Finance to Steady the M&A Downturn” at a pan-African forum in Kigali, Rwanda, where he warned that Africa risks missing a critical phase of industrial expansion unless financial institutions develop more flexible and scalable funding solutions.

According to the statement, the slowdown in mergers and acquisitions across the continent reflects a financing gap rather than a shortage of business ambition.

Citing findings from a discussion paper presented at the forum, Ajene noted that Africa’s M&A activity weakened even as global dealmaking recovered. According to BCG’s 2025 M&A Report, Africa’s total deal value fell by about 24 per cent in the first nine months of 2025 compared with the same period in 2024, while transactions involving African companies declined by nearly 46 per cent.

Over the same period, global deal value increased by around 10 per cent, highlighting Africa’s relative underperformance.

The statement also cited data from DealMakers Africa, which showed that M&A deal value across Africa, excluding South Africa, fell by 16 per cent year-on-year to $4.66bn in the first half of 2025, while deal volumes dropped by 21 per cent.

The appetite for growth remains strong among African businesses,” Ajene said. “What is missing are financing instruments that reflect the realities of how African companies expand. Many firms are ready to scale, acquire competitors, or deepen regional integration, but the financial architecture to support those ambitions remains underdeveloped.”

According to him, many African banks continue to rely heavily on traditional lending structures with rigid repayment schedules that often fail to align with the uneven growth patterns of mid-sized firms.

He noted that financing tools such as mezzanine finance, hybrid debt-equity structures, and earn-out mechanisms remain limited across many African markets.

“Such structures are particularly important in a market where offshore private capital has become more selective, local institutional capital remains relatively shallow, and elevated interest rates have made traditional acquisition debt more expensive for mid-market companies,” the statement read.

Ajene said the financing challenge persists despite Africa’s growing appeal to investors. He noted that foreign direct investment into Africa rose by 75 per cent to a record $97bn in 2024, according to data from UN Trade and Development.

However, he said the increase was concentrated in large project-finance transactions, while greenfield investment announcements fell by 37 per cent to $113bn, underscoring the need for financing structures capable of converting investor interest into completed corporate transactions.

“Africa’s M&A slowdown is fundamentally a financing problem, not a demand problem,” Ajene said. “There are viable businesses, willing buyers, and strategic opportunities across sectors. The challenge is that too many good transactions fail to proceed because the right financing structures are unavailable.”

He called for stronger partnerships between commercial banks and Development Finance Institutions to improve risk-sharing arrangements for acquisition financing.

According to him, such arrangements would allow commercial banks to provide senior debt while DFIs support subordinated financing layers, with guarantee mechanisms attracting additional lenders into the market.

Ajene said such structures are particularly important at a time when offshore private capital has become more selective, local institutional capital remains relatively shallow, and elevated interest rates have made traditional acquisition debt more expensive for mid-market companies.

He added that the approach would reduce concentration risks for lenders while providing African businesses with longer-tenure capital suited to expansion and consolidation.

Ajene also stressed the need for clearer qualification frameworks to help businesses understand what lenders consider M&A-ready.

“Many African companies have strong potential but lack visibility into the requirements lenders expect around governance, cash-flow predictability, and operational resilience,” he said. “By standardising assessment frameworks and increasing transparency, banks and DFIs can significantly expand the pool of eligible borrowers.”

He added that reversing Africa’s M&A downturn would require not only more capital but also smarter deployment of capital through financing structures designed around African growth realities.