There has long been a feeling in the finance industry that the African continent has the potential to be a huge player in the global private equity (PE) marketplace. Analysts have looked back on how Africa performed in 2013 and prospects for the year ahead. Although Dealogic have reported a slight drop in deal value year on year from 2012 to 2013, there is real hope that 2014 could prove to be the breakthrough year that sends billions spiralling towards a number of projects across the continent, particularly in the opportunity-laden East African region.
One of the biggest promising indicators from the last 12 months, as reported by PENews.com, is that global businesses and PE firms are now starting to freely distribute cash flow to their African operations. PENews notes that Fan Milk International received $350million from Groupe Danone and Abraaj Group, while PE fund Carlyle Group’s late 2012 commitment of $210million to a company selling exports to India and China demonstrates where the African opportunities lie.
Traditionally, agriculture, infrastructure, property, and transport have been seen as the big opportunities in Africa, and it was easy to see why. However, in addition to food and exports, energy is also set to be big in 2014. Energy companies usually see high value investments from PE funds anyway, but with Africa being a relatively untapped market the opportunity here is even more lucrative. PE investments into African energy exceeded half of the continent’s $1.37billion total deals last year.
Increasing investor confidence in Africa can be put down to the high value returns now being enjoyed on the continent. From 2008 – 2012, there were 118 successful buyouts across Africa. In 2013 alone, there were 80. Michelle Essome of the African Venture Capital Association put it simply to PENews, saying, “If you have a good company, you will find a buyer.”
Opportunities to make healthy returns is likely to see record levels of fundraising in 2014 as individual investors and funds begin to understand the long-term prospects of the continent and position themselves to stimulate African PE markets and wider economic growth.