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Less Developed African Markets Delivering Better Private Equity Deals

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April 8, 2014

Multinational services provider Ernst & Young (EY) have recently completed a piece of research for the African Private Equity and Venture Capital Association (AVCA), which indicates that the best private equity (PE) deals across Africa are to be found in the less developed markets.

 

The research, which is reported on by the Financial Times, looks closely at the performance of exits across the continent, finding that those in less developed areas are delivering the best returns.

 

EY also found that the exit returns on offer in these areas are favourably comparable to those in more established PE markets, including in China and across Latin America, given the speed at which African businesses are growing in some areas. Figures were not disclosed in relation to these findings.

 

The big positive in Africa from a PE perspective is that investors are now seeing the continent as a viable opportunity, rather than as an alternative investment. Confidence in being able to exit is also relatively new.

 

Hurley Doddy of Emerging Capital Partners acknowledged this to the FT, saying, “If you have a good and profitable company in Africa you can sell it. That wasn’t clear in 2000 when we started [investing there].” Another piece of research cited in the same report by the FT states that 60% of limited partner funds see Africa as the most attractive destination for emerging markets.

 

Given the findings of the initial piece of EY research for the AVCA, and the fact that African economies are all at largely different stages offering a diversity of opportunities, it is no surprise that so many see Africa in this manner.

 

The African PE marketplace in 2014 is likely to continue developing at pace, with a great mix of inter-African deals between smaller and larger firms bolstered by the continuing influx of huge global PE firms.

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