London, UK, 29 October 2015: Private equity (PE) in Southern Africa continues to show resilience despite a challenging economic environment, new research by the African Private Equity and Venture Capital Association (AVCA) shows.
AVCA’s Spotlight on Southern Africa Private Equity reveals 341 PE deals completed in the region between 2007 and 2014 with a combined value of US$6.7bn. The report highlights contrasting investment environments between South Africa and the rest of Southern Africa. South Africa continues to dominate PE activity in the Southern African region, accounting for 76% of deal volume and 92% of deal value from 2007-2014.
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The research also reveals differing sector trends in South Africa compared to the rest of Southern Africa. PE activity in South Africa is heavily focused in sectors associated with the country’s strong manufacturing base, and the growth of its middle class consumer base. The industrials, consumer discretionary, real estate and materials sectors accounted for 63% of the volume of transactions in the country from 2007 - 2014.
Whereas in the rest of Southern Africa, PE deals tend to be focused on the emerging financial services sector and the growing demand from a burgeoning consumer base. Over a quarter (28%) of all PE deals from 2007-2014 in Southern Africa excluding South Africa were in the financial services sector alone followed by 26% in the consumer staples sector.
The report showcases a strong exit environment in Southern Africa with 127 PE exits recorded between 2007 and 2014. Exits via sales to trade buyers – many to South African firms looking to expand their footprint within South Africa and across the region – have accounted for a large proportion of exits in the region. As with the rest of Africa, there is increasing diversification of exit routes.
The research, to be shared exclusively with AVCA members on xxx, reveals a maturing industry responding to tough economic conditions regionally and globally. Whilst deal volumes decreased between 2012 and 2014, PE firms remained resilient and focused more on the potential for growth over the medium to long term in the region and less on short term economic cycles.
Looking ahead, Michelle Kathryn Essomé, Chief Executive of the African Private Equity and Venture Capital Association, said “The outlook for private equity in Southern Africa remains promising. The strong exit environment will continue to encourage investment in the asset class. GPs that have successfully navigated the global financial crisis and are able to deliver returns are likely to prove attractive to LPs and increase fund flow into the region”
Dr.Ponmile Osibo, Research Analyst at the African Private Equity and Venture Capital Association, added: “PE in Southern Africa excluding South Africa is still relatively nascent and is therefore likely to see increased deal activity as indigenous country and regional funds emerge. With a number of countries actively enacting reforms and initiatives to diversify their economies away from commodities, we expect PE to play a crucial role in the region’s broader economic development”
The full report, which includes further details and statistics on the exit environment and fundraising activity in the region, will be made available exclusively to the AVCA membership.
The Spotlight on Southern Africa Private Equity is available to download here.