Africa’s private equity market flush with cash

The private equity market in sub-Saharan Africa is bubbling with optimism, following a promising performance over the past six months.

The positive trend has been reported not only in Africa but also in the rest of the world. Industry players are confident of this momentum being maintained by the funds, to deliver a much better show than last year.

Since the beginning of the year, investments into the funds have recorded a 55 per cent growth, raising $11 billion compared with the $9 billion recorded during the same period last year, according to the Emerging Markets Private Equity Association (EMPEA).

The growth was not only in the number of deals sealed, but also in the size of the transactions made.

A total 402 deals have been made this year, 44 per cent more than last year, whereas the average deal size has leaped from $40m to $51m.

In sub-Saharan Africa alone, about $1 billion has been invested, bringing the total investment so far to $1.9 billion.

Macquarie Capital Funds, which manages the African Infrastructure Investment Fund, raised the highest amount of funds, at $320 million.

This gave the region, together with Latin America, a significant portion of the overall increase in capital raised, though lesser than Asian funds which accounted for over half of the raised investment.

Globally, China remains the leading destination for new capital.

Funds dedicated to the country take up two thirds of 46 Asian funds that raised capital through mid-year, 60 per cent of the total capital raised for Asia, and one third of the total capital raised for emerging markets during that period.

The president and CEO of EMPEA, Sarah Alexander, says that out of the 10 funds that were closed through mid-year in sub-Saharan Africa, only three were country-dedicated, two for South Africa and one for Angola.  

The rest were focused on regional strategies, mostly with footprints spanning a number of markets.

Though most of the funds have a general strategy and are not sector specific, Ms Alexander adds, the focus sectors will be energy and natural resources, financial services, and consumer goods and services.

Ms Alexander says there are even more and better quality deals in the pipeline waiting to be sealed, thanks to the revitalised investment conditions in emerging markets such as Africa.

“The continued easing of price expectations among sellers means managers have been more successful in closing transactions. Emerging market fund managers are increasingly bullish in light of stabilising markets and lower valuations,” she adds.

Other factors that have been attributed to the newly found attractiveness of Africa is an expanding middle class and increased efforts towards improving infrastructure.

The director of Actis East Africa, Michael Turner, says there is an unprecedented increase in the middle class in Africa as well as other emerging markets.

Fixing its hitherto largely dilapidated infrastructure is also making the continent more attractive to investors.

Mr Turner says that in future, Africa could overtake the Asian countries to climb onto the top of the tables and dominate the growth trends in the private equity markets.

Besides these factors, Hany Assaad, the chief investment officer in private equity at the International Finance Corporation, says there is a major improvement in the macro-environment in Africa.

This has made it market-based and also helped spur entrepreneurial activity, leading to a rapid sprouting of SMEs in the countries.

Consequently, the private equity fund managers have had a wide range of prospective clients to choose from.

Into the second half of the year, EMPEA forecasts more investments being channelled into Africa.

Though this confidence is expected to last the entire cycle of the year, EMPEA indicated that investors are somewhat cautious about committing new funds.

Nonetheless, the association’s president and CEO says fundraising levels are anticipated to rise, riding on the back of the more active investment environment.

“Prospective and undecided investors are looking for indications of improved liquidity to support the promise of managers’ ability to generate cash flow,” she adds.