Private Equity Enters New Phase In Africa

By Staff Published: May 6, 2017, 8:48 am
private equity AfricaTokunboh Ishmael, co-founder of Alitheia at 2017 AVCA conference Photo: AVCA

According to the African Private Equity and Venture Capital Association (AVCA), a total of US$6.5 billion has been raised for African PE from 2011 to 2016, with a total reported deal value over the same period of US$ 22.7 billion for 919 deals. In 2016 alone, 145 deals were reported, totaling US$ 3.8 billion, according to the Daily Maverick.

The evolution of PE in Africa has been underpinned by the enduring commitment of development finance institutions (DFIs), as well as local and international development banks. Favorable population growth trends, steady increases in disposable income and diverse, expanding economies have also played a role. Despite the challenges, like political uncertainty, foreign currency shortages, exchange rate volatility and cyclical commodity-exposed businesses, African PE continues to present attractive investment opportunities.  The lack of developed listed exchanges might mean one less exit route for PE fund managers, but it presents opportunities for investors to gain access to high-potential, privately owned businesses in those markets. Many industries on the continent are also supported by strong macroeconomic fundamentals – like rapid urbanization, increasing consumer needs, and an expanding middle class – which will continue to attract investors from across the globe.

In the 1990s and early 2000s, major local and regional players saw themselves mainly as capital providers; taking a more passive role in portfolio management compared to today. The tradition was to take a seat on portfolio company boards, drive good governance, and guide sober financial decision-making.

According to Bain & Company, PE firms in Africa need to ramp up value-creation efforts if they are to keep delivering attractive returns amid a challenging macro environment. Over the last five years, several have transformed their investment strategy and portfolio management model accordingly, requiring a bigger investment of human capital into their own in-house portfolio management team. There has also been a conscious shift towards appointing skilled portfolio partners (marketing, sales, engineering, technical, logistics), supported by in-house transaction, finance and ESG teams.

From the Daily Maverick. Story by Juan Coetzer.

According to the African Private Equity and Venture Capital Association (AVCA), a total of US$6.5 billion has been raised for African PE from 2011 to 2016, with a total reported deal value over the same period of US$ 22.7 billion for 919 deals. In 2016 alone, 145 deals were reported, totaling US$ 3.8 billion, according to the Daily Maverick.

The evolution of PE in Africa has been underpinned by the enduring commitment of development finance institutions (DFIs), as well as local and international development banks. Favorable population growth trends, steady increases in disposable income and diverse, expanding economies have also played a role. Despite the challenges, like political uncertainty, foreign currency shortages, exchange rate volatility and cyclical commodity-exposed businesses, African PE continues to present attractive investment opportunities.  The lack of developed listed exchanges might mean one less exit route for PE fund managers, but it presents opportunities for investors to gain access to high-potential, privately owned businesses in those markets. Many industries on the continent are also supported by strong macroeconomic fundamentals – like rapid urbanization, increasing consumer needs, and an expanding middle class – which will continue to attract investors from across the globe.

In the 1990s and early 2000s, major local and regional players saw themselves mainly as capital providers; taking a more passive role in portfolio management compared to today. The tradition was to take a seat on portfolio company boards, drive good governance, and guide sober financial decision-making.

According to Bain & Company, PE firms in Africa need to ramp up value-creation efforts if they are to keep delivering attractive returns amid a challenging macro environment. Over the last five years, several have transformed their investment strategy and portfolio management model accordingly, requiring a bigger investment of human capital into their own in-house portfolio management team. There has also been a conscious shift towards appointing skilled portfolio partners (marketing, sales, engineering, technical, logistics), supported by in-house transaction, finance and ESG teams.

Read more at Daily Maverick.

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