Confidence in African private equity market at a high, says Deloitte

06 December 2017 Authored by

Investor confidence is at a high in Africa with respect to the Private Equity (PE) market, despite the fundamental issues that economies across the continent have been facing over the last few years. More than 60% of the respondents in a survey conducted by Deloitte expect activity in the PE segment to increase over the next year.

Economies across the African continent have been navigating a challenging period. A dip in global oil prices in 2014 brought the economy to a standstill, and growth, if any, has been negligible since. However, despite these conditions, the continent appears to be swept by optimism about the future, boosted by trends such as the rapid digitisation expected across the continent over the next five years. 

According to a survey from Big Four professional services firm Deloitte, PE activity across the continent, particularly in Sub-Saharan (SSA) regions, is expected to increase. 63.3% of the respondents surveyed expressed optimism for the next 12 months.

Regional variations

Focusing in on individual regions, 62% of the respondents in Eastern Africa anticipate an increase in PE activity, and 38% expect it to remain the same. None of the respondents expect a decrease in activity, which reflects an improvement in the atmosphere from last year, when 5% expected the PE market to take a fall. The driver of growth for the region is expected to be Kenya.

Regional expectation of PE Activity

In Southern Africa, the optimists remain in the majority at 45%, while 34% expect PE activity to remain the same, and the remaining 21% expect a decrease. The region is the most pessimistic in the continent, which the report attributes to political and economic uncertainty in South Africa.

The west, meanwhile, emerged as the most optimistic of the three regions in SSA, with an impressive 83% expecting an increase in PE activity and 17% expecting it to remain stable, leaving no respondents who expect a decrease. With vibrant economies such as Nigeria in its quarter, Western Africa remains positive due to expected increases in commodity prices.

Regional expectation of PE Activity

A promising trend emerged when the areas of focus of the respondents were examined, as most appeared to place their faith in growth opportunities and new investments. 70% of the respondents in Western Africa spent a majority of their time ‘Helping Portfolio Companies Grow,’ while 67% and 57% in Eastern and Southern Africa respectively did the same.

Similarly, 74% of the respondents in Western Africa spent a majority of their time on ‘New Investments,’ while 52% in Eastern Africa and 61% in Southern Africa did the same. Meanwhile, a relatively large number of respondents focused on ‘helping portfolio companies improve their corporate governance and management practices,’ accounting for 26% in Western Africa, 33% in Eastern Africa, and 26% in the south.

Other areas of focus in the survey included ‘helping portfolio companies refinance,’ ‘raising new funds,’ and ‘helping portfolio companies restructure’. However, these were not as popular among respondents as new investments.

Regional investment intentions

When asked about their activity over the next year, 57% of the respondents in Eastern Africa expected that they would invest more, 29% said that they would invest in and exit more or less the same number of deals, while 14% said that they expect to exit more deals than they invest in. This is a particularly negative outcome of the survey, given that 90% of the respondents in the region expected to invest more last year, while 10% would invest the same as they exit, and none reported they would exit more.

On the contrary, this outcome improved since last year in both other regions. In Southern Africa, 71% (60% last year) of the respondents expected to invest more, while 14% (29% last year) expect to invest and exit the same, and 14% (11% last year) expect to exit more. Yet again, Western Africa emerged as the most optimistic, with 84% ready to invest more, 11% expecting to invest the same, and 5% expecting to exit more.

Commenting on the report, Clinton Wolder, Associate Director in Deloitte’s Corporate Finance Division said, "Overall the big point that came out is a very optimistic view. I think, despite the current economic and political challenges across the continent, our participants in that survey have an optimistic outlook for private equity. I think that’s quite a positive result from the survey."