Despite the slowing global economy and bleak near-term prospects, Africa’s private equity industry has shown resilience in the first half of the year.
The African Private Equity and Venture Capital Association (AVCA) biannual report finds that the industry has shown itself to be “resilient”, despite the bleak outlook. Not surprisingly, the figures collected by the association nevertheless show a marked decline.
However, the association recorded $1.1 billion in funds raised in the first six months of the year, including final and interim closings. During the period, AVCA recorded 81 significant transactions, totaling $700 million.
At the end of 2019, the Venture Capital Association said, Africa’s macroeconomic outlook was generally positive, with forecasts of robust economic growth across the continent.
Average growth of 3.9% in 2020 and 4.1% in 2011. However, like the rest of the world, the Covid-19 pandemic precipitated an economic crisis, changing the socio-economic landscape of ‘Africa and its growth prospects quite significantly. “The downward revisions to Africa’s growth illustrate the new economic reality, which threatens to upset recent progress in development,” say private equity professionals.
Given pre-existing structural vulnerabilities, some African markets are expected to sink into a deeper recession as 2020 progresses, reflecting severe contractions in the global economy more broadly.
The Covid-19 containment measures on the continent have interfered with intra-African trade and disrupted regional supply chains.
Nevertheless, the industry was able to keep a cool head in the first half of the year. Finance, information technology and the consumption of secondary goods were the most active sectors, attracting 49% of transactions by volume.
Technology companies accounted for 51% of investments. The healthcare sector accounted for the largest share of Private Equity transactions by value (24%), thanks to Mediterrania Capital Partners’ investment in MetaMed, the largest platform of diagnostic imaging centers in Egypt, Jordan and Saudi Arabia.
Important outings!
The information technology sector recorded the largest increase, both in terms of volume (+ 17% vs. + 8% a year earlier) and value (+ 16% vs. + 7%).
In the first half of the year, 39% of the total amount closed was made by funds from sub-Saharan Africa. Funds focused on a specific country accounting for 30% of total funds raised. Pan-African funds and regional funds accounted for the remaining 31%.
During the pandemic, several local financing solutions were developed to support businesses affected by the health and economic crisis, such as the South Africa Recovery Fund launched by Ninety One and Ethos Private Equity, with a targeted fund size of around $600 million.
In the first half of 2020, the number of releases fell to 13 from 25 in the corresponding period last year. However, we saw notable exits over the period, such as the exit of Adenia Partners from the capital of Mauvilac, the Mauritian paint manufacturer, and the exit of Actis from GHL Bank, a commercial bank in Ghana, to First National Bank Ghana.
In the first half of 2020, North Africa attracted the largest share of PE transactions in volume (31%) and value (42%), followed by West Africa accounting for 21% of transaction volume and 22% of the value of transactions.
While no region in the world comes out of the shock of Covid-19 unscathed, “we expect private equity and venture capital firms to continue to support African economies in the face of the storm in the second half of the year. 2020 and beyond,” concludes AVCA. Note that the association will be holding an online conference on the prospects for the continent on Thursday, November 12, 2020.
