We recently looked at a report that analysed research completed by Ernst & Young on behalf of the African Private Equity and Venture Capital Association (AVCA), and at what this meant for the PE marketplace across Africa.
The status of Africa as something of a haven for investors looking at making the most of emerging markets is undoubtedly a positive, and now Business Day Live has looked further into the EY report and at how it demonstrates the diversity that is present across Africa.
Middle Income Africa
Business Day have picked up on a statistic featured near the conclusion of the report, which states that 27 African countries are now “middle income” classified by the World Bank.
What is significant about this isn’t necessarily the number, but rather that many PE firms are looking at Africa because they believe the middle income boom is about to come. In reality, it is already here.
In middle income Africa, those PE firms that have only just started looking at Africa as a serious opportunity have likely already missed out on opportunities for investing. Part of the reason many firms were reluctant to invest in Africa was because of the perceived difficulty in exiting from the continent.
However, as exits have become easier in recent times, the firms that somewhat gambled 5 – 10 years ago on the rise of the African middle class are now seeing the best possible returns.
The firms who head to Africa now will definitely still have opportunities to enjoy profitable investments, but the most lucrative of those have by and large been exploited by those that are well established there. Private equity has established itself as one of Africa’s key economic drivers; it is likely to become a key profit driver for PE firms before the end of this decade, too.
Who is succeeding in Africa?
While having “a presence” in Africa from a PE perspective can largely be defined as a firm having interests there, the better way to look at it is in terms of the businesses that are physically present on the continent.
These are the businesses that are having the most success, and this is a trend that has been seen around the world. If a PE firm has a local presence, not only are they more likely to get the deals they’re seeking, but they’re also going to see more success owing to how hands on they can be with their portfolio interests.
The EY report said, as cited by Business Day, “Exits in our sample that were managed through a local office had an average holding period of five years — a full year shorter than those managed through regional hubs or those managed without either.
Our findings suggest that an in-country office really counts in Africa’s private equity markets…” As the African economy continues to develop, PE firms will need to adapt their practices and approach to ensure they are taking advantage of all opportunities on offer to them.