AFRICA'S 2014 PRIVATE EQUITY DEALS HIT RECORD $8B

The total value of deals in 2014 on the continent, according to a private equity data tracker, was $8.1 billion, or $0.2 billion shy of the highest recorded figure of $8.3 billion in 2007.

The value of private equity deals in Africa reached its second-highest level last year since 2007 despite various socio-economic challenges.

The total value of deals in 2014 on the continent, according to a private equity data tracker, was $8.1 billion, or $0.2 billion shy of the highest recorded figure of $8.3 billion in 2007.

The data tracker, compiled by the African Private Equity and Venture Capital Association (AVCA), showed a total of 983 African private equity transactions were made between 2007 and 2014, which the organisation described as a sign of confidence in the continent by investors.

“Africa private equity fundraising reached $1.8 billion in 2014, with an additional $2.3 billion of interim closes announced during the year,” AVCA said.

The analysis showed that a total of $22 billion was raised by Africa private equity funds since 2007 but fundraising is expected to remain steady as long as the investment climate in the region remains stable.

In the recent past insecurity, fuelled by terrorism, has become a major socio-economic challenge, with some economists fearing it could undermine private equity deals in future. In addition, unemployment rates have remained high in the majority of African countries, where a high proportion of the population is youthful and poor.

However, according to economist James Oduwor, the growing middle class and improving political climate are attracting investment to the continent.

“Apart from the growing population creating demand, Africa offers potential investors more opportunities due to its diversified market and economies that are growing at high rates of above six per cent,” said Mr Oduwor.

For example, last year the International Monetary Fund predicted strong growth, of above five per cent, would continue in Africa, driven by a combination of infrastructure investment, expanding services and robust agricultural production.

East African governments have been reviewing laws and implementing business friendly policies to attract more investments to the region.

Despite the rosy outlook this year, the World Bank has warned that plunging oil prices, lethargic growth in the developed world and a slowdown in China’s economic growth could bring down sub-Saharan Africa’s growth rate to below five per cent.

“Any significant decline in economic growth is likely to affect private equity deals; however, there is hope that growth rates will remain high,” Mr Oduwor added.

According to the United Nations Economic Commission for Africa (Uneca), though private equity on its own is not a driver of economic growth or upliftment, it can be a catalyst and accelerator for growth, provided that there is already significant positive economic momentum.

The AVCA analysis showed that the fast moving consumer goods, financial services and industrial sectors accounted for 59 per cent of the private equity transactions by volume from 2007 to 2014, while telecommunication services attracted the largest investment by value.

Telecommunication services accounted for 25 per cent of the transactions, followed by fast moving consumer goods (15 per cent), financials (12 per cent), industrials and utilities (12 per cent each), materials and energy (9 per cent each) and real estate (3 per cent).

The telecommunication sector has managed to attract more private equity deals due to positive growth prospects in most African countries.

A recent study conducted by management consulting company Manifest Mind showed that Africa’s telecommunication sector is set to grow at an annual rate of 21.27 per cent to reach $234 billion by 2020.

The AVCA analysis also revealed that between 2011 and 2014, West Africa received the lion’s share of private equity investments, in terms of percentage share of transactions, at 25 per cent, followed by South Africa (24 per cent), East Africa (18 per cent), North Africa (14 per cent), Southern Africa excluding South Africa (7 per cent) and Central Africa (5 per cent).

AVCA director Dorothy Kelso said the research provided further evidence of a maturing private equity market in Africa, a positive sign for a continent that had been ignored by fundraisers in the past.

“Supported by local and foreign institutional investors, African private equity firms are increasingly able to mobilise much-needed capital to invest in a diverse range of companies, countries and sectors across the vast African continent,” said Ms Kelso.

The East African