The investors, who largely comprise development finance institutions and high net-worth individuals, are mainly interested in purchasing stocks of financial institutions and fast-moving consumer goods companies, according to the latest survey by consultancy firm KPMG and the East Africa Venture Capital Association.
According to the study, of the total private equity funds of $3.7 trillion raised globally between 2007 and 2014, an estimated 0.6 per cent ($22 billion) is earmarked for Africa, with 0.04 per cent ($1.5 billion) destined for East Africa.
The survey shows that 79 private equity-backed deals valued at $822 million were concluded in East Africa over the same period, with signs that the upward trend could be maintained.
Investment in five key sectors — agriculture, finance, fast-moving consumer goods, information and communications technology and health — accounted for more than half of the deals.
The largest share in the region was taken by Kenya, which accounted for 63 per cent of the total deals.
Tanzania and Uganda accounted for 15 per cent and 10 per cent of the deals respectively.
Rwanda attracted six deals, accounting for eight per cent of the deals; Ethiopia concluded three deals, equivalent to four per cent of the total.
According to the survey, investors appear keen to take a more pan-regional focus in their African investment approach with Kenya serving as the financial hub and gateway to Uganda, Tanzania and Ethiopia.
Private equity refers to investors and funds that make investments either directly into private firms or acquire public companies that end up being delisted from the security exchanges.
The majority of the funds raised through such investments are injected into target businesses to strengthen the company’s balance sheet and fund growth and expansion programmes.
According to the survey, the total PE funds raised by East Africa-focused funds during the seven-year period stood at $1.6 billion.
“Two sectors — financial and fast-moving consumer goods — dominated the larger deal sizes, since these sectors are showing a faster maturity and are driven by the rising middle-income levels,” said Sheel Gill, the director in charge of deal advisory at KPMG Kenya.
“The increase in deals in the recent past indicates the underlying growth of targets and an increasing appetite for larger investments in East Africa,” she added.
A total of 21 exits, valued at $260 million were realised mostly through share buybacks.
According to the survey, the financial services investments seem to be the most marketable for the PE sector, with nine exits — 43 per cent — being in this sector.
Retail, education, renewable energy and mining experienced no exits.
It is argued that the EAC is becoming attractive to private equity investments partly because of its integration agenda facilitating easier cross-border activity.
A similar survey by consultancy firm Ernst & Young showed that $3.2 billion was injected into 98 PE investments in Africa in 2013, and $3.3 billion was raised through PE funds closed.
According to the report titled Private Equity Round Up: Africa, large global PE firms are looking to the African market to capitalise on the growing investment opportunities available in sectors such as finance, consumer goods, infrastructure and resources.
Many of the PE investments in Africa go into businesses owned by families or entrepreneurs, which tend to be smaller companies. The average size of transactions in 2013 was $60 million.
According to the report, sectors linked to the rise of the African consumer, particularly those in the FMCG space, are particularly attractive to PE firms.
Between 2010 and 2013, the banking and financial services sector in sub-Saharan Africa received $772 million worth of private equity investments.
The consumer industry followed closely behind with $692 million. Energy and natural resources are also expected to be one of Africa’s most significant industries because of the continent’s abundant supply of commodities and continuing need for improved power supply.
The East African
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