African private equity down in 2016 but outlook is positive

At the African Private Equity and Venture Capital Association (AVCA) annual conference in Abidjan, Cote d’Ivoire last week, it was revealed that private equity (PE) investment in Africa fell sharply in 2016.

The volume of PE funds committed dropped by 47%, from $4.3bn in 2015 to $2.3bn last year. This is undoubtedly a function of the downturn in the continental economy as a result of much lower commodity prices.

However, the future looks bright because of the recent upturn in the price of most mining commodities. Moreover, this fall could be a short term blip, as AVCA identified $3.8bn in planned but not completed PE deals last year, up from $2.5bn the previous year. A total of 919 deals were reported in Africa over the period 2011-16, with a total value of $22.7bn. AVCA was launched in Cameroon in 2003 and now has more than 130 members.

The utilities sector, including telecoms, attracted 46% of total deal value, making it by far the most popular target for investment. West Africa was the most active region, with 27% of the deals by value over this period, in comparison with just 5% in Central Africa. North Africa proved of limited interest but it seems likely that investment here will increase in line with the upswing in security and political stability in the region

Cyril Odu, the CEO at the African Capital Alliance, said: “As the effects of rapid urbanisation, a resilient and adapting middle class and accelerating consumption patterns begin to take shape, increasing investor interest will continue to boost deal flow and intensify capital injections. As the 2016 Annual PE Data Tracker shows, private investment in Africa is developing at an exciting rate.”

However, there are always failures – or perceived short term failures – in any kind of investment. Carlyle invested $147m in Nigeria’s Diamond Bank in 2014 but Diamond’s market capitalisation fell by 90% over the subsequent two years. The director and head of research at AVCA, Enitan Obasanjo-Adeleye, said:  “This is no flash in the pan; we now have seen strong and sustained PE investment in Africa over the past ten years.”

Recent deals

There is little doubt that there is a trend of increasing private equity investment in Africa. Most recently, on 13 April, Pan-African PE firm 8 Miles LLP made an undisclosed investment in Blue Skies, a British fruit firm that operates in Africa. 8 Miles supplies fruit juice and cut fruit across the UK and Western Europe from its operations in South Africa, Ghana and Egypt. The investment will allow the company to expand its operations, including its juice production in Egypt.

Doug Agble, a partner at 8 Miles LLP, commented: “This is an exciting opportunity to partner with a highly successful founder and a top-quality management team who have built a business based on solid and unique foundations. We aim to support Blue Skies in their continued growth and help them develop their brand across Africa.”

On 11 April, Investec Asset Management (IAM), Deutsche Investitions- und Entwicklungsgesellschaft and Avanz Capital have completed the management buy-out of 100% of SJL Group, which is a logistics operator connecting Morocco and Tunisia with Europe via the Port of Tangier.

IAM investment principal Gerben Dijkstra said: “The buyout of SJL represents our first private equity investment in Morocco, which we see as a very attractive market. In acquiring a market leader, with a high quality service offering comparable to global operators and led by an experienced management team, we are very excited about the opportunities for it to capitalise on the rapidly growing manufacturing sectors in Morocco and become a true regional leader.”

Just five days earlier, PE fund manager Kibo Capital Partners invested in I&M Bank Rwanda. A spokesperson for Kibo said: “Investing in IMR allows Kibo to support a market leading bank expand further in one of the Sub-Saharan Africa’s dynamic economies. As the first Private Investment in Public Equity (PIPE) transaction in our current fund, Kibo played a cornerstone role as the main international institutional investor in IMR’s successful initial public offering on the Rwanda Stock Exchange.”

Neil Ford