Private Equity News Africa: Key Developments and Investment Insights
The African private equity market has demonstrated significant growth and resilience in recent years, attracting investors from across the globe. This market is characterised by its diverse investment opportunities across various sectors and regions.
In 2022, the continent saw a notable increase in private capital activity, with 626 reported deals, equating to a 46% year-over-year rise, and US $7.6bn raised in investments. This indicates a strong investor confidence in the African private equity market.
Limited Partners (LPs) play a crucial role in fuelling the growth of the market by providing capital commitments to private equity funds. With their support, these funds are able to make strategic investments in high-potential African businesses. Investment opportunities in the African private equity market extend to various sectors, including technology, renewable energy, healthcare, and consumer goods.
Venture capital has also seen considerable growth in Africa, even though it experienced a decline in Q3 2023. The drop in venture capital deal volume by 34% compared to the same period in 2022 was attributed to a slowdown across all asset classes. Nonetheless, it is expected that the venture capital space within Africa will continue to expand in the coming years, driven by the increasing number of innovative start-ups.
Another noteworthy trend in the African private equity market is the delisting of companies from stock exchanges. South Africa, in particular, has experienced a rise in the buying and delisting of companies from the Johannesburg Stock Exchange. This allows private equity firms to fully control and manage their investments, enabling them to execute long-term strategies and maximise returns.
In conclusion, the African private equity market offers a diverse range of investment opportunities across different sectors and regions. With its robust growth and an array of prospects, it continues to garner attention and capital from investors worldwide.
Prominent Players in the African Private Equity Scene
The African private equity landscape has shown significant growth over the years, with several key players making a notable impact in the region. Among the most active investors in this space are Medu Capital, Ethos Private Equity, African Rainbow Capital Investments, African Infrastructure Investment Managers, and Metier, as highlighted in a list of the top 12 investors in South Africa.
Sanari Capital, another important name in the African private equity scene, garnered impressive results when their Sanari 3S Growth Fund raised R1.25 billion from investors that included Africa's largest asset manager, the Public Investment Corporation, and Alexforbes Investments, according to an article from Rateweb.
Another key player, the African Private Equity and Venture Capital Association (AVCA), provides crucial insights into the industry. AVCA's data has been instrumental in understanding the trends and opportunities shaping the African private equity market. For instance, the AVCA's report on private equity deals in H1 2020 saw a constant total value of US$0.7 billion, as mentioned in a White & Case article.
In addition to these notable investors and associations, development partners play a pivotal role in the African private equity scene. Among them, Development Partners International and CDC Group have been influential in shaping the industry by providing capital and partnerships to businesses across the continent.
African private equity managers also play an essential part in the industry's growth. They are responsible for making strategic investment decisions and managing risk in portfolio companies. According to a Deloitte Africa Private Equity Review 2022, around 41% of private equity firms in South Africa prioritise managing risk in portfolio companies, while many others maintain a largely unchanged strategy.
In summary, the African private equity scene comprises a mix of prominent investors, venture capitals, private equity managers, and development partners. These entities play a critical role in driving the industry's growth, providing capital, resources, and expertise to businesses across the continent.
Investment Opportunities and Areas of Interest
Investment opportunities in Africa have been growing, particularly within sectors such as infrastructure, energy, and real estate. Private equity funds have shown interest in engaging with Africa-focused projects to capitalise on the continent's diverse needs and thriving sectors.
Infrastructure projects have been receiving considerable attention from private equity investors as they play a crucial role in stimulating economic growth. By investing in transport systems, utilities, and communication networks, private equity funds can make a significant impact on improving the quality of life for citizens while strengthening Africa's global competitiveness.
Energy investments have also become a focal point for investors as Africa is considered a hotbed for renewable energy sources. Opportunities in solar, wind, and hydroelectric power generation provide attractive long-term returns and contribute to a sustainable future for the continent. For example, South Africa's private equity market has seen investments in the energy sector through infrastructure-focused initiatives, as mentioned in the Deloitte Private Equity Review 2022.
Africa-focused strategies have become increasingly popular among private equity investors due to the potential for high returns in emerging markets. By targeting ventures that cater specifically to African consumers, resources, and industries, these investors can maximise the appeal and efficacy of their investments.
In line with this focus, various funds are exploring opportunities in consumer-driven sectors, such as fast-moving consumer goods, agriculture, and retail. Valuable assets can be found in Africa's growing middle class and rapidly urbanising population creating a burgeoning demand for goods and services.
To summarise, private equity investment in Africa has a wide range of opportunities available with the infrastructure, energy, and Africa-focused strategies sectors demonstrating strong potential. Engagement in these areas is expected to continue growing, offering both financial rewards and positive social impact for investors and African communities alike.
Influence of Covid-19 on PE Investment
The Covid-19 pandemic has had a significant influence on private equity (PE) investment in Africa. Deal volumes and values notably declined during the first half of 2020, with the value of private equity deals dropping by approximately 63% compared to 2019. This decline can be attributed to the economic disruptions caused by widespread lockdowns and the subsequent recession.
In spite of these challenges, some sectors within the industry have remained resilient and stand to benefit from ongoing portfolio and balance sheet restructurings, particularly in Southern Africa. For instance, the African Private Equity and Venture Capital Association (AVCA) reported that the total value of African PE deals in H1 2020 remained constant at US$0.7 billion, the same as H1 2019.
Impact investing, focused on driving positive social and environmental outcomes alongside financial returns, gained traction during the pandemic. Such investments contribute to addressing the socio-economic consequences of Covid-19, promoting recovery across the continent, and building more resilient and sustainable economies.
Although the pandemic has disrupted investment strategies, it has also accelerated the adoption of digital technologies in various sectors, resulting in a growing interest in technology-driven enterprises. These opportunities are likely to shape the trajectory of private equity in Africa, as the region navigates its way through the ongoing recession and recovery in a post-pandemic world.
Current Fundraising Trends
The African private equity landscape has experienced remarkable growth in recent years, with new fundraising and investment activities making an increasing impact on the continent's financial sectors. In 2021, the total volume of private capital deals in Africa reached a record high of 429, a substantial increase of 66% compared to 258 deals in 2020. This surge exceeded the annual average deal volume of 215, which was observed between 2016 and 2020, ultimately leading to a 19% compound annual growth rate (CAGR) between 2016 and 20211.
A key contributor to this growth is the healthy fundraising environment. The Bright Africa Private Equity report reveals fascinating trends in the PE ecosystem in 2021, focusing on elements such as fundraising, dry powder, investments, and pricing, providing valuable insights into the current state of the African private equity market.
Furthermore, the African Private Capital Activity Report delves into the fundraising, investments, and exit trends taking place across the continent in 2022. This analysis offers a comprehensive perspective on the prevailing trends, enabling stakeholders to make informed decisions and seize potential opportunities.
In addition to fundraising, the African private equity sector boasts robust investment activities. Financial services continue to play a vital role in attracting private equity investments, along with sectors such as healthcare, technology, and renewable energy. This diversification exemplifies the connectivity between various industries and their ability to create synergies for growth and development.
It is vital to recognise that the private equity landscape in Africa is not homogenous. Differences in regional markets contribute to distinct trends and opportunities. Nonetheless, the overall atmosphere remains positive, with investors and managers demonstrating a great deal of confidence in the capacity of African markets to generate attractive returns and amplify the economic progress of the region.
African PE deals reach record high in 2021 | Africa Global Funds ↩
Role of Development Finance Institutions
Development Finance Institutions (DFIs) have been instrumental in shaping the landscape of private equity in Africa. These institutions, with their patient capital and high-risk tolerance, enable banks and private investors in Africa to finance corporate growth and development projects across the continent (source).
In recent years, DFIs such as Sanlam Private Equity and FMO have made significant strides in supporting projects across various sectors, including healthcare, infrastructure, and renewable energy. In doing so, they enable African enterprises to unlock their potential, attract further investments, and ultimately contribute to the continent's economic growth.
One example of a development finance institution's impact is Sanlam Private Equity, which focuses on sub-Saharan Africa, providing financial support to growth-oriented companies across a range of sectors. They offer value-added assistance through strategic partnerships and a hands-on approach, delivering sustainable impact not only in financial returns but also in environmental, social and governance aspects (source).
Another key player in Africa's private equity sector is the Dutch development bank, FMO. As a development finance institution, FMO provides financing and advisory services to businesses with a focus on sustainable development. They offer tailor-made solutions, including equity, loans, and guarantees, to support economic growth in emerging markets, primarily in the fields of energy, agribusiness, and financial services (source).
Moreover, DFIs have been adapting to technological advancements and have started supporting tech startups in Africa. For instance, the International Finance Corporation (IFC), a World Bank affiliate, has pledged to invest in tech startups to help them grow into scalable ventures that can attract mainstream equity and debt financing (source).
In conclusion, the crucial role of Development Finance Institutions in the private equity landscape cannot be understated. By providing much-needed financial support and strategic guidance to projects and businesses across a range of industries, DFIs are planting the seeds for sustainable growth and development in Africa.
Exits and Analysis
In recent private equity news in Africa, there have been a number of significant exits. For instance, Sanlam Private Equity, the private equity division of Sanlam Investments, successfully sold its majority stake in pet care retailer Absolute Pets to Woolworths Holdings on November 6, 2023. This exit marks a promising trend in the continent's private equity landscape.
In a special 2023 report from Private Equity International, it is revealed that private equity firms are increasingly getting involved in the continent's energy transition efforts. The African exit market is also adapting to both global and local challenges, with growing interest in gender-lens investing across the region. This highlights how the private equity industry in Africa is adapting to changes brought on by market conditions and socio-political considerations.
The AVCA's 2022 African Private Capital Activity report indicates that private capital investment in the financial sector remained strong despite uncertain macroeconomic conditions. According to the report, the financial sector accounted for $2.4 billion in private capital deployment across 180 deals in 2022. This data suggests that the private equity firms remain confident in investing in the financial sector in Africa.
Overall, the recent exits and increased investment activities in different sectors demonstrate the potential and resilience of the private equity market in Africa. As private equity firms and investors continue to adapt and find new opportunities in the region, the outlook for Africa's private equity landscape remains optimistic.
Innovations: Fintech and Renewable Energy Sectors
Africa is witnessing significant developments in its fintech and renewable energy sectors. Rapid technological advancements and a growing need for cost-efficient industrial energy access are driving innovation across the continent.
The fintech industry in Africa is emerging as a hotbed for investment, with average deal sizes growing and the proportion of fintech funding in Africa increasing over the past year. As a result, the growth of fintech is creating jobs and bolstering the economy. Prominent areas of innovation include digital payments and mobile banking, which allow people to access and control their finances more conveniently. Furthermore, many fintech companies are addressing the issue of financial exclusion by offering more inclusive financial services than traditional banks.
In addition to fintech, the African renewable energy sector presents promising opportunities for innovation. Several investors, including the African Development Bank and large-scale private funds, have recognised the importance of energy for Africa's post-COVID economic recovery World Economic Forum. Amplifying efforts in developing renewable energy sources, such as solar and wind power, can help combat energy poverty, reduce carbon emissions, and foster sustainable economic growth.
Private equity firms are also seeking energy transition opportunities in Africa. Combining efforts from public and private sectors, African innovation hubs are on the rise, hosted by some of the world's leading technology companies. However, there is still more to be done for Africa to catch up with the rest of the world in terms of global R&D spending and patent applications.
In conclusion, the fintech and renewable energy sectors are prime areas for innovation in Africa. Bridging the gap between technological advancements and sustainable development in the region will propel Africa in the global race for innovation.
Resilience and Growth in the African PE Market
The African private equity market has demonstrated remarkable resilience in recent years, despite macroeconomic headwinds and unforeseen global challenges. Market participants have adapted to various conditions and continued to engage with the continent's diverse needs.
In Sub-Saharan Africa, investment opportunities have expanded in various sectors, such as consumer goods, infrastructure, and technology. Meanwhile, North Africa has experienced a surge in investments in renewable energy, telecommunications, and healthcare. This focus on key economic sectors has contributed to the growth of the African private equity market.
Surprisingly, even during the COVID-19 pandemic, the total value of private equity deals in the first half of 2020 remained consistent with the previous year's figures, according to the African Private Equity and Venture Capital Association (AVCA). Moreover, the number of deals actually increased from 230 in 2019 to 255 in 2020, indicating that market participants have adjusted to new realities and maintained investment momentum.
In 2021, deal volumes in the African private equity space reached a record high, with a 66% increase from 2020, resulting in 429 deals reported. This exceeded the average annual deal volume between 2016 and 2020, reflecting a compounded annual growth rate (CAGR) of 19%.
Risk management has become a significant focus for private equity firms in Africa, with Deloitte's Private Equity Review 2022 finding that 41% of firms in South Africa prioritised risk management in their portfolio companies. Furthermore, 14% of private equity firms indicated their intention to focus on bolt-on and tuck-in acquisitions to strengthen their portfolio companies.
These trends and developments in the African private equity market highlight the resilience and growth prospects within the continent. As more investors recognise the value of engaging in emerging markets like Africa, it is expected that the private equity space will continue to flourish and play a crucial role in the region's economic development.
Upcoming Events and Developments
The African private equity industry continues to show promising growth, with several noteworthy events and developments on the horizon. In 2023, the private capital investment in Africa witnessed its strongest ever start, raising $7.2bn in the first three quarters of the year. This has set a positive tone for the upcoming events and developments in the region1.
One significant event for the African private equity industry is the Private Equity International's Africa 2023 report, which provides valuable insights for investors, fund managers and various stakeholder groups. The report highlights crucial trends, challenges and opportunities related to private equity investing across Africa's energy sector, on-the-ground investment strategies and early exit planning.
The South African Private Equity Industry 2023 report also predicts a boost in the sector due to the Pension Funds Act amendments. These legislative changes are set to increase the Funds Under Management (FUM), offering ample growth potential for the industry.
Regional players are poised to make significant moves in the private equity market. Key South African firms include RMB Corvest, RMB Ventures, Metier, African Rainbow Capital, Hlayisani Capital, Vantage Capital, and the SA SME Fund2. Furthermore, Africa's investment potential is being embraced by Helios Investment Partners as they continue developing their extensive portfolio in the region3.
To conclude, the African private equity landscape will likely be shaped by several upcoming events and developments, including those mentioned above. These undertakings will undoubtedly contribute positively to the industry's growth and serve as a strong indicator of Africa's potential for further investment.
Conclusion: The Future of Private Equity in Africa
The African private equity market has demonstrated its resilience in the face of challenging macroeconomic conditions. Opportunities remain abundant for managers eager to address the continent's diverse needs and deploy capital efficiently .
In recent years, Africa has seen a noticeable increase in private equity fundraising, reflecting the growing interest and confidence in the region. In 2022, a record-breaking $7.2 billion was raised in the first three quarters . This trend is expected to continue as more investors appreciate the potential rewards of investing in this emerging market.
While the overall private capital deal volume in Q3 2023 experienced a 34% decline compared to the same period in 2022 , the long-term outlook for private equity in Africa remains bright. This is largely thanks to a shift in focus towards specific sectors where new opportunities are emerging.
Buyouts, particularly in sectors such as technology, renewable energy and healthcare, will play a significant role in the growing private equity landscape . The advent of new technologies and innovations will attract investment in these high-growth areas, ensuring a sustainable and profitable future for private equity in Africa.
Finally, considering the expansion of private equity markets, it is likely that more African companies will choose to participate in the public listing process. This will lead to a more dynamic and mature market, further bolstering the potential for private equity players across the continent.
In conclusion, the future of private equity in Africa is promising. Despite some challenges and uncertainties, Africa's diverse sectors and potential for growth remain attractive to investors. The evolving landscape of buyouts and public listings will pave the way for long-term success and profitability in this burgeoning market.
Frequently Asked Questions
Which are the top venture capital firms in Africa?
Several venture capital firms have made a significant impact on the African investment landscape. While it is difficult to pinpoint the absolute top firms, some notable examples include Helios Investment Partners, EFG Hermes Private Equity, and the African Infrastructure Investment Managers (AIIM). These firms have successfully backed various startups and businesses, contributing to the growth of the continent's economy.
What are the latest private equity trends on the continent?
The latest private equity trends in Africa reflect a growing interest in infrastructure, real estate, and energy sectors, particularly in countries such as Nigeria, South Africa, Egypt, and Kenya which attract a large part of the private equity funding in the region. Moreover, fund managers are increasingly favouring smaller regional and specialist strategies as the landscape evolves.
How do private equity returns in Africa compare to other regions?
While African private equity returns tend to vary depending on the market and sector, they generally offer competitive returns compared to other regions. The unique market dynamics, coupled with the continent's strong growth potential, make Africa an attractive destination for investors seeking long-term growth opportunities. However, risks associated with political instability, currency fluctuations, and regulatory challenges can impact returns.
Who are the key players in African private equity?
The key players in the African private equity landscape include local and international private equity firms, pension funds, development finance institutions, and sovereign wealth funds. Additionally, organizations like the African Private Equity and Venture Capital Association (AVCA) play a significant role in supporting the growth and development of the industry.
What sectors are attracting the most investments in Africa?
Currently, the most invested sectors in Africa are infrastructure, real estate, and energy, particularly in countries like South Africa, which is experiencing growth in its private equity market despite the economic recession. Other sectors, such as consumer goods, healthcare, and technology, also show promising potential for private equity investments.
What are the main challenges facing private equity in Africa?
Private equity in Africa faces challenges such as regulatory hurdles, political instability, currency fluctuations, and limited exit options for investors. Moreover, the ongoing impact of the COVID-19 pandemic poses a challenge to deal-making activity and investor confidence. Despite these challenges, the continent's growing population, vast resources, and untapped markets offer attractive opportunities for private equity investors.