Private equity deals in Africa are on pace for a 60% drop this year

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…
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…
Image: Reuters/Siphiwe Sibeko
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The economic impact of Covid-19 is starting to show up in private equity activity and deals in Africa.

With the continent’s largest economies on the brink of recession and investors looking to be more capital efficient while the effects of the pandemic unfold, private equity activity is slowing down across Africa in comparison to recent years.

In the first half of the year the value of private equity deals on the continent is on pace for a 63% drop compared to last year, says a report from the African Private Equity and Venture Capital Association (AVCA). The value of the 81 private equity deals reported stood at just $700 million.

There’s a similar lag in the amount of funding raised by private equity players as well with $1.1 billion raised in the first half of the year, counting interim and final closes. If similar levels are maintained through the rest of the year, private equity fundraising on the continent will also record its lowest total in six years. In a similar vein, private equity exits have also slowed down with only 13 recorded in the first half of 2020.

Perhaps capturing the growing concern around the underfunded African health systems brought into sharp relief by the pandemic, health care sector, took nearly a quarter of all private equity deals done by value. The sector was led by Mediterrania Capital Partners and others’ investment in MetaMed,  the largest platform of diagnostic imaging centers in Egypt, Jordan and Saudi Arabia.

But the most active sectors were financials, information technology and consumer discretionary, which attracted 49% of deals by volume.

Regionally, North Africa received the largest share of private equity deals by volume and value across the continent followed by West Africa.

The slowdown in PE activity reflects the wider economic uncertainty across the continent: the Sub-Saharan Africa region is expected to fall into its first recession for 25 years as economic growth reverses and plunges due to the Covid-19 global crisis. In particular,  the World Bank predicts Nigeria is set for its worst recession in four decades. While African countries have recorded lower counts of coronavirus cases compared to Europe and North America, fears of a mass outbreak led to waves of lockdowns and economic restrictions across the continent in response to the pandemic.

Those grim forecasts have also heralded predictions of a sharp drop in startup funding across the continent after years of record-breaking investment. But despite expectations of a slowdown, Africa’s tech ecosystems have shown resilience in other forms as evidenced by the recent and unexpected trend of multi-million dollar exits.

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