The Private Equity community in Africa has been expanding steadily in recent years and is now entering a new phase of maturity

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In 2013:

  • US$3.2b was invested in 98 PE investments
  • US$3.3b was raised through PE funds that closed
  • LPs rated Africa as the most attractive emerging market
  • Half of all African countries (27) are now "middle income" countries
  • Unique PE investment strategies and platforms are evolving

Africa continues to demonstrate strong underlying fundamentals that signal continued growth of private equity in the medium term, even in the presence of uncertainty over the US Federal Reserve’s quantitative easing policy, continued austerity and slow growth in Europe, and investor concerns over weakening economic or political environments in some emerging economies. Lessening dependence on resource-driven growth, growing trade and diversification of trading partners, and a commitment by governments to create environments in which companies can do business more easily should support this growth over the next few years.

EY’s latest Private Equity Africa Roundup (pdf, 1.3mb) report delves into the drivers of fund-raising, investment activity and exits in Africa to deliver fresh insight into the forces shaping private equity activity across Africa, including macroeconomic trends, regulatory developments and capital markets activity.

Key findings from the report include:

Strong outlook for PE fundraising
Growing interest from LPs resulted in a significant increase in fund-raising numbers for 2013, with US$3.3b funds closed during the year. The outlook for PE fund-raising over the medium term remains strong. A growing limited partner (LP) appetite for exposure to the region is driving improved fund-raising numbers, and there are a significant number of funds currently on the road that are looking to benefit from this increased LP interest.

Graham Stokoe, EY’s Africa Private Equity leader, says:  “Although the PE landscape in Africa continues to be dominated by domestic and regional PE firms, a number of large global PE firms are exploring the market focusing on the growing investment opportunities available in sectors such as consumer, infrastructure and resources. Furthermore, new and existing players in the African PE market are increasingly carving out niche strategies in areas such as infrastructure, green energy and impact investing attempting to build a competitive edge on the continent.”

Sub-Saharan Africa (excluding South Africa) attracting increasing attention from PE
Markets outside South Africa will continue to gain a greater share of PE investment. Historically low PE penetration and smaller entry multiples relative to developed economies and most other emerging markets mean that PE firms will be able to continue to make investments in small and medium sized companies, although there will be greater competition at the larger end of the deal size spectrum given the fewer opportunities.

Sectors benefiting directly and indirectly from the growth of the African consumer should continue to attract much of the investment targeted at the region, although infrastructure, real estate and natural resources are increasingly a focus for PE firms, particularly for larger value investments.

Positive outlook for exits
The predominant exit route in Africa continues to be via trade sales, although other exit routes such as sales to other PE firms and IPOs should inch upwards over the coming years. The peak for exit activity in terms of volume was in 2007, followed by a couple of lean years for exits in 2008 and 2009 in the immediate aftermath of the credit crunch. Since 2010, exit activity recovered to average around 28 exits per year.

Graham Stokoe, commented further, “The pipeline for PE exits in the medium term looks strong as there are still a significant number of PE investments made in the boom years of 2007 and 2008 (and before) that PE firms need to exit. As PEs look to raise new funds, a few successful exits also help in demonstrating a PEs track record.”

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