Dorothy Kelso, Director, Head of Strategy and Research at the African Private Equity and Venture Capital Association (AVCA) gives us a few insights on the African markets.
Leaders League. In recent years the amounts of funds raised by African private equity firms constantly increased. Yet we know that this trend is also true for many GPs around the world. Do you think that is more momentum for Africa than for the rest of the world?
Dorothy Kelso. As the African PE market is still relatively small, the total value of Africa PE fundraising in any particular year is dependent on whether larger PE funds announce a final close. 2015 was a bumper year for fundraising in Africa because a handful of large funds achieved final closes during the year. Overall, 3 funds accounted for 65% of the total funds closed during 2015.
Leaders League. You recognized emerging markets like Africa were impacted by real concerns linked to economic growth. What are the concrete impacts of these concerns?
D. K. 2015 saw fewer deals above US$250mn compared with 2014, resulting in a drop in overall total deal value from US$8.1bn to US$2.5bn. This may be related to the uncertain global economic environment. Nevertheless, deals below US$250mn in size remained relatively stable, with the total annual value of these deals even increasing slightly in 2015 compared with 2014. Overall, as PE in Africa matures, the industry is demonstrating resilience and continued growth even as wider concerns about emerging markets impact the investment landscape. PE firms in Africa continue to inject capital in a variety of sectors from industrials to financial services mobilising local economies and creating jobs.
Leaders League. A few words on 2016...
D. K. 2016 is likely to see lower fundraising totals than 2015 as there are fewer large funds currently fundraising. Looking forward, Africa’s fundamentals including rapid urbanization, a rising middle class population and more business-friendly policies from African governments will continue to provide opportunities of interest to PE investors. Notwithstanding the current uncertainty around emerging market economies, low commodity prices and depreciating local currencies, many PE investors in Africa have developed the requisite skills, experience and knowledge to continue to invest, grow and add value to portfolio companies.
Leaders League. 2015 was a year of relative small deals. How do you explain that?
D. K. The African PE landscape is still relatively nascent, and smaller businesses are currently the mainstay of the industry across the continent. In the medium to long term in Africa, bigger PE deals will naturally become more frequent, as will debt in PE transactions.
Leaders League. On a continent as large as Africa, we assume that private equity activity isn't the same everywhere. What are the top performing countries, the challengers and the regions still to be developed?
D. K. Sub-Saharan Africa remains a focus for PE investors. PE activity tends to be linked to the size of a country’s economy. As such, some of the largest PE markets in Africa are South Africa, Nigeria, Ghana, Morocco and Kenya, while very small economies in Africa are those that attract a relatively low amount of PE investment
Leaders League. Apart from consumer goods, the sectors targeted by investors are big, classic industries such as energy/utilities and infrastructure. What others are on their way up, maybe with the help of venture capitalists?
D. K. PE investment is likely to continue to be geared towards the FMCG (Fast Moving Consumer Goods) sectors, with infrastructure, real estate and energy also attracting a substantial interest from investors. Sub-sectors that saw a notable increase in PE deal values in 2015 relative to 2014 (albeit from a low base) were Commercial & Professional Services (Industrials), Health Care Equipment & Services (Health Care) and Software & Services (Information Technology).