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Private equity firms are raising billions to back African businesses but need to do more deals

Reuters/Siphiwe Sibeko
A man walks past the Johannesburg Stock Exchange building in Sandton December 6, 2012. South Africa’s black majority directly owns less than 10 percent of…
By Yomi Kazeem
Published Last updated This article is more than 2 years old.

After a three-year slowdown, increased fundraising suggests private equity investors are bullish about business prospects in African economies once again.

In the first half of 2019, the total value of fundraising closed by Africa-focused private equity firms reached $1.7 billion, according to a report from African Private Equity and Venture Capital Association (AVCA). While not an exact science, the half-year total is on pace to surpass fundraising figures from the last two years and match the $3.4 billion raised in 2016—the second highest total in the last five years.

In one of the largest fundraising totals recorded in the period, Climate Fund Managers closed $850 million for its Climate Investor One fund which will focus on making bets on renewable energy projects across Africa, Asia and Latin America. Amethis, an investment fund manager solely focused on African businesses, closed over $400 million for its Amethis Fund Two.

But while fundraising amounts are inching higher, the total value of deals are not: the 79 private equity deals in the first half of the year totaled $700 million in value, on pace for the lowest value total in the last half decade.

Private equity exits are also on pace to slow down this year with only 19 recorded exits in the first half of 2019. Similar growth in the second half of the year will result in the fewest private equity exits on the continent since 2012. It’ll also be a departure from a strong run over the past decade which has seen sustained flow of private equity exits amid political uncertainty and the downturn in growth (and weakened currencies) in some African economies.

Trade buyers, defined here as other private equity firms, also accounted for more than half of exits in the first half of 2019, a reflection of the lack of options through initial public offerings given the small size of local public equity markets.

Regionally, South Africa’s economy —widely regarded as the continent’s most advanced—pulled the largest share of private equity deals by volume in the first half of the year. And a notable trend is the increased private equity interest in healthcare with the sector surpassing its totals for deals by both deals and volume, compared to the first half of 2018.

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