Private equity activity in Africa has increased significantly in the last 30 years, a report commissioned by global law firm Baker McKenzie and The Economist Corporate Network shows.
The report, titled ‘A growth engine: Trends and outcomes of private equity in Africa’, stipulates that the number of active general partners on the continent has grown from a dozen or so in 1990, to at least 140 general partners at present.
Between 2010 and 2016, general partners invested about $25.6-billion across sectors that ranged from consumer goods to water and sanitation.
“General partners’ approach to investment in Africa is, in several ways, distinct from how the asset class functions in other parts of the world,” Economist Africa director Herman Warren said during a presentation of the report, in Johannesburg, on Wednesday.
For instance, he said, private equity fundraising and deal execution have a longer lead time in Africa than private equity funds focused on other regions, the deal sizes are usually smaller, the average holding periods sometimes extend over eight years and the exit options are weighted towards trade sales.
Warren pointed out that trade sales were associated with corporate buyers purchasing assets in their core line of business.
“Private equity, therefore, plays an important role in facilitating the presence and strategic expansion of corporates in the region.”
The report also shows private equity activity in Africa will inject billions of dollars of sustainable investment over the next five years.
Private equity deals in Africa are growing from a low base equivalent to 0.18% of Africa’s gross domestic product in 2016.
Every 0.01% increase will mean $200-million more invested and could easily reach $1.1-billion over the next five years.