Out-Law News 2 min. read
06 May 2016, 9:57 am
Total value of Africa PE funding in 2015 was $4.3 billion, according to a 'Bright Africa' report on the industry by Cape Town-based RisCura Solutions (Pty) Ltd.
The report, published on 4 May, said: “Some of the largest African private equity funds seen to date were closed in 2015, including Helios Investors Fund III ($1.1bn), Abraaj Africa Fund III ($990 million) and African Development Partners Fund II ($725m).”
RisCura executive Rory Ord said: “The slowdown in the growth of emerging market economies hasn’t inhibited the ability of African investment managers to attract significant amounts of capital, particularly for the larger Pan-African funds as well as sub-Saharan Africa funds.”
Ord said: “The reasons for these higher PE multiples included high growth expectations, particularly in the short term, and increased competition for deals. We also think that perceived risk on the continent may have declined, as investors become more comfortable with the environment leading to a reduction in discounts for risk adjustments.”
“Investors making commitments to Africa may be flocking to these experienced managers as a way of mitigating their risk, knowing that the next few years are bound to be a more difficult time for the continent,” Ord said.
According to the report, over the 2009 to 2013 period “more than half of PE transactions took place at lower than a 6x multiple”. However, in 2014 and 2015, the report said less than a third of PE transactions took place at that level.
“Over 30% of reported PE transactions in 2014 and 2015 took place at greater than a 10x multiple, while this was less than 20% of cases in the earlier periods,” the report said.
By contrast, companies’ enterprise value divided by earnings before interest, tax, depreciation and amortisation (EV/EBITDA) multiples of listed equity on the continent “have remained relatively flat over the 2013-2015 period, with a slight decline from 2014 levels”, the report said.
The consumer discretionary sector continued to attract interest from investors, making up 22% of all transactions in 2015, according to the report. “Of particular interest over the past few years has been online retail, education services such as tertiary education and colleges, as well as advertising and publishing houses.”
The report said: “The consumer sector has been identified time and time again as one of the most attractive areas for investment on the continent, due to the favourable demographics and the so-called ‘growing middle class’.” As a result, “both the consumer discretionary and consumer staples industries fetch the highest multiples across all sectors”.
A “large portion” of transaction activity in 2015 was due to the financial sector, which comprised 16% of total transactions, the report said. “Points of interest range from regional banking to asset management and financial services across all regions.”
Overall, transactions “took a dip last year, as the industry seemed to concentrate more on raising funds”, the report said. “The total number of transactions was around 160, a level last seen in 2010 and 2011.” However, mergers and acquisitions activity on the continent “appears to have trended upward in 2015, with over 1,200 transactions reported, an increase from 990 the previous year”.
Last year, a partnership was launched by the UK’s development finance institution (CDC) and the Norwegian Investment Fund for Developing Countries (Norfund), to acquire a “significant minority” stake in Globeleq Africa from the Actis infrastructure 2 fund. The funds said their partnership aimed to tackle “bottlenecks” that can interrupt infrastructure projects in the early stages of development.
South Africa has been identified as the top investment destination in sub-Saharan Africa for UK firms looking to expand, according to overall rankings in the Barclays Africa Trade Index (21-page / 1MB PDF). Nigeria ranked second with Kenya ranked third.
