Africa’s Private Equity is still young and volatile according to the Deloitte Private Equity Confidence Survey 2014 report released today by Deloitte Touche and Africa Assets.
The report, released today focuses on SMEs and later stage companies, especially in consumer driven sectors such as financial services, fast moving consumer, agribusiness and healthcare/pharma.
“This focus is explained by the expanding middle class, seen as a key driver of future revenues, but it is a crowded space with PE funds looking for attractive deals,” said Alexander Van Schie, Director Corporate Finance Services-Deloitte East Africa. “This focus is one of the reasons for a mismatch between where PE funds look to invest and where investments are wanted, the funding gap.”
According to the report, a total of 84 deals were completed in Sub Saharan Africa in 2013; of those, 46 reported total value of US$3.69bn. Kenya, Nigeria and South Africa, are the top three destinations while Ethiopia is among the rising stars. In Francophone Africa, Cote d’Ivoire is a top destination for PE funds and analyst peg that to its strong growth, stable politics, solid infrastructure plus a stable electricity.
With 12 deals valued at over Sh9.6 billion ($112 million), Kenya had the highest PE activity in East Africa representing 46% of the total number of deals in Eastern Africa and 69% of total reported values. Rwanda came in second with five deals valued at $41.3m (Sh3.6 billion). Ethiopia attracted one deal, by Catalyst Principal Partners, an East African-focused Private Equity firm, which acquired a 50% stake in Yes Brands Food & Beverages PLC.
“More and more funds are setting up offices in the region attracted by high returns and the large number of opportunities. The survey findings indicate that majority of players are in the investment phase, with most expecting increased competition for deals,” said Van Schie.
The survey indicates that deal hunting now faces great competition for lucrative deals, with most ideal targets in the region commenting that they get visits from PE players looking to invest in them every so often.
Private Equity funds invested more than three times as much in sub-Saharan Africa in 2013 as they did in 2012—a development that points to increased appetite for opportunities in the region which, according to the World Bank, is also one of the fastest growing in the world.
Data from the Deloitte Private Equity Confidence Survey 2014 report indicates that 2012 was a slump in deal making, a development which was likely linked to lack of confidence in global markets and fallout from the Eurozone crisis that depressed growth in many African countries that year. In addition, an increasing number of funds are being closed, suggesting an improvement in the fundraising environment and continued LP confidence in the industry, even if funding is still dominated by development finance institutions.
“Confidence for PE in Africa is certainly increasing. Track records are deepening, growth is strong, risks are manageable and local partners continue to rate the region highly amongst their emerging market options,” said Van Schie. “But even with the trend, PE in Africa is still a young and volatile industry.”
The extractive industries had the highest value of reported deals in SSA in 2013, but this was driven by one large deal of US$1.53bn (oil & gas), which is vastly higher than the average deal sizes and can therefore distort the overall picture. The largest numbers of deals in Eastern Africa were in agribusiness, healthcare and financial services. Deal sizes overall continued to remain small.
The report also indicates that many larger deals outside of infrastructure and extractives are still restricted to South Africa. But transactions such as the Abraaj-Fan Milk deal – reportedly the largest FMCG PE deal in African history – offer hope for diversification across sectors and countries.
“Despite this growth, the PE industry is still in its nascent stages, compared to other more advanced emerging markets. Of immediate interest is whether the growth in PE activity has outpaced growth in the number of deals,” concluded Andrea Bohnstedt, Director of Africa Assets, who co-authored the report.
Bohnstedt told TechMoran that the technology industry in Kenya is growing, with much potential expected in the enterprise software sector. Unfortunately, hyped mobile apps developed for rural farmers are mentioned more than the growing enterprise software industry.
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