The value of private equity deals in East Africa rose to $152 million last year, tripling from $52 million in 2014, with investors searching for better yields amid global market volatility and slowing economic growth.
The rise in the value of deals in Kenya, Uganda, Tanzania, Rwanda, Burundi, South Sudan and Ethiopia is attributed to new capital inflows from private foreign equity and fund companies seeking the benefits of a diversified institutional portfolio that the region offers. This was despite currency depreciation and high interest rates.
South African advisory firm RisCura and the East African Venture Capital Association (EAVCA), which prepared the region’s first dashboard to collate investment data noted that although Kenya dominates private equity activity, regional exposure is at the heart of deal-making.
“Larger deals tend to be regionally focused, while smaller deals are single-country focused. While much of the focus is towards regional opportunities, Kenya remains the country of operation in most instances,” noted RisCura EAVCA.
RisCura EAVCA was formed in 2013 to foster private equity with the aim of measuring its impact on economic growth.
Executive director Nonnie Wanjihia said this would bridge the knowledge gap between the public and private sectors on the impact of private equity on growing enterprises.
“Although the numbers are still small, the dashboard shows that private equity is growing, particularly as some local and regional pension funds continue to take an interest in the asset class,” said Ms Wanjihia.
The inaugural “East Africa Private Equity Deal Dashboard of 2016” surveyed 13 EAVCA members with three pan-African funds, bringing the total to 16 funds and 63 representative transactions.
Consumer business still dominates transaction numbers at 40 per cent of total value while the financial sector takes up 35 per cent of East Africa’s deal activity.
“While financial is the second biggest category by number of deals, it makes up 14 per cent of deals, compared with 35 per cent by deal value; no other sector makes more than 10 per cent of volume,” said RisCura.
East Africa continues to attract interest from private equity firms and investors but there is a need to keep track of deals to establish individual firm track records because the industry is still in early stages.
“The private equity industry will continue to grow if performance is monitored and communicated to potential investors. The fundraising done to date by private equity pioneers is commendable,’’ said RisCura executive Rory Ord.
The dashboard found most transactions are minority deals across all sectors with paid in capital. Of the three big sectors, financial seems to attract the highest levels of paid in capital to enterprise value.
“In general, the smaller deals seems more likely to be the majority, or at least have higher levels of investment relative to enterprise value,” notes the dashboard. “More than half of majority deals are buyout or replacement transactions while only 5 per of minority deals are buyout or replacement deals.”
EAVCA said opportunity remains in private equity since public market ones are relatively limited.
Business Monitor International has projected GDP growth will be 5.9 per cent, 6 per cent, 5 per cent and 7 per cent in Kenya, Tanzania, Uganda and Rwanda respectively, exceeding almost every other region globally.
“Investors are keenly following the progress of the major infrastructure projects in the region, which has historically been the main drag on the economy,” said Ms Wanjihia.
These include the standard gauge railway that is expected to connect the coastal town of Mombasa in Kenya to Kigali in Rwanda, as well as energy projects meant to address the deficit in the region.