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Growth prospects see private equity funds increase in EA

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More firms are currently raising Africa-focused funds to capitalise on available opportunities in the region. TEA Graphic

More firms are currently raising Africa-focused funds to capitalise on available opportunities in the region. TEA Graphic 

By STEVE MBOGO Special Correspondent

Posted  Saturday, March 2  2013 at  15:55

In Summary

  • Rising business confidence, consumer demand and improving economic conditions in the region have whetted PE executives’ appetite for opportunities in the technology, mining and financial services sectors.
  • Increased interest in the East African market marks a huge shift in private equity attitudes toward Africa, which have historically focused more on South Africa.
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Private equity inflows into East Africa are expected to hit record highs this year as business confidence in the region increases and the continent attracts more Africa-focused fundraising activities.

Last year was more subdued due to global economic woes, but now more firms are in the market raising Africa-focused funds to capitalise on growth opportunities in the region, according to projections by business advisory companies Deloitte East Africa and Ernst & Young.

Rising business confidence, consumer demand and improving economic conditions in the region have whetted PE executives’ appetite for opportunities in the technology, mining and financial services sectors.

Increased interest in the East African market marks a huge shift in private equity attitudes toward Africa, which have historically focused more on South Africa.

Analysts said increased PE inflows could help push huge infrastructure projects in the region as well as provide funds for firms across all sectors. New East Africa-focused funds are increasingly targeting high-growth SMEs in consumer-driven sectors.

Data by Ernst & Young shows that Africa-focused PE funds raised only $1.1 billion in 2012, less than half of what was raised in 2011.

EAC countries were some of the biggest beneficiaries of these funds. “Despite a difficult 2012, the long-term outlook for fund-raising for the region remains strong. Although funds are taking longer to raise across the globe, there are a significant number of funds that are likely to close in 2013,” said Ernst & Young.

Private equity funds investing up to $20 million will likely hunt for deals in the fast growing financial services sector. Other sectors of interest include fast moving consumer goods, manufacturing including agro-processing, and to a lesser extent technology, media and telecoms.

“The bigger players will be looking at large scale mixed use real estate development, whereas players from outside the region have shown an interest in infrastructure related investments, though I expect such investments will take another few years to come to the market,” said Alexander van Schie, the director of corporate finance services at Deloitte East Africa.

Funds are changing from general to sector-specific to capitalise on opportunities in sectors benefiting from consumer growth as well as much-needed infrastructure investment.

Private equity firms are also increasingly diversifying their geographical focus outside the more advanced economy of South Africa to countries like Nigeria, Ghana, Kenya and Ethiopia.

“The large number of SMEs needing growth funding, coupled with strong economic fundamentals and a lack of alternative funding sources, should continue to drive the growth of private equity investment across Africa closer toward the levels seen in other emerging markets,” said Ernst & Young.

While investment sizes in the region remain limited, several large deals have been closed and investors expect deal size to creep up over time.

Key highlights of private equity activity in the region in 2012 included closure of fundraising by Catalyst Principal Partners of $125 million; merger of EAC-focused fund InReturn with Jacana Capital of UK to create a new fund of $75 million to spend in East and West Africa and the entry of new players like Progression, Incofin and Ascent Capital.

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