Mergers loom in industrial, travel sectors
Steve Umidha @UmidhaSteve
The challenging environment brought by the coronavirus pandemic will force players in the travel and industrial sectors to strategically merge to reduce expenses and improve their operations.
Analysts believe that prospective consolidation, restructuring and mergers in those sectors will create a cascading effect and prompt other sectors to rethink their strategic priorities.
They also expect bankruptcies and permanent closure of certain industries.
Industry consolidation occurs when separate companies – big or small – join forces on relatively equal terms to form one new company, while a merger is a new business formed when one company absorbs the other.
“Within those two sectors, we will also see meaningful gradations of valuation between larger and smaller companies coming together as a result of reduced profit margins and drop in demand,” says Standard Investment Bank (SIB) director Job Kihumba.
He added: “It is not a question of if it will happen, but when they will do it.” Experts expect consolidation in the aviation sector, oil industries as well as export businesses all of which are entwined and immensely subsidise the country’s economy.
Other sectors expected to rethink their strategies as a result of the ravaging pandemic is the mobile lending space, according to financial expert Peter Macharia, who is the chief executive of Jijenge Credit.
Macharia warns that the sub-sector could be caught flat footed owing to the fact that it lacks sound credit appraisal systems to evaluate creditworthiness and bankability of a prospective borrower.
“The financial sector as whole will not be hugely impacted but mobile lenders will feel the heat in the long run…tourism and mainly aviation sector will definitely see a huge wave of consolidation going forward,” he said.
The pandemic has had harsh impact on key sectors like tourism and travel with the closure of hotels and stalled operations in the aviation sector.