PE & Fundraising
Nigeria beats peers to most private equity deals in five years
SOURCE AVCA, BUSINESSDAY ANALYSIS
Africa’s largest economy recorded the continent’s highest private equity deals in five years, according to data obtained from Africa Private Equity and Venture Capital Association (AVCA).
Nigeria outperformed South Africa and Kenya to record a total of 112.14 deals amounting to $7.8 billion in the five year period of 2012 and 2017, with South Africa recording $2.8 billion while East Africa’s largest economy raked in $1.17 billion.
Although Nigeria had the most deals in terms of value South Africa recorded more deals by volume at 207.32 surpassing Nigeria’s 112.14 and Kenya’s 100.8 private equity deals.
“Nigeria attracted the highest private equity deals in the continent as a result of the business opportunities that investors see in country,” Ayo Akinwumi, Head of Research FSDH said by phone.
“It has a large market size, considering its large and young population, despite the risk, investors see the opportunity available in the diverse sectors of the economy and they take no chance in exploring from the fortune,” Akinwunmi said.
Africa recorded total private equity deals of 953 in volume at $24.4 billion in value from 2012-2017.
Out the total deals that was transacted in the continent, West Africa accounted for 267 deals by volume at a value of $10.7billion, the Southern region followed with a record of 284 deal by volume and at a value of $3.8billion and the Eastern Africa region also recorded one of the highest deal in the continent at a volume of 180 with valued at $2.4billion, among others.
The key area that attracted the most private equity deals in the period under review were the consumer goods sector, information technology, financial services, industrials and information technology.
The number of reported private equity deals that transacted in West Africa stood at 267 between 2012 and 2017, with a total value of $10.7 billion and a median deal seize of $6million.
Nigeria attracted 42 percent volume of the total 267 deals transacted in the region. This also accounts for $7.8 billion or 73 percent in value of the total $10.7 billion which the deals were worth.
Nigeria officially exited recession in the second quarter of last year and experienced a 1.4percent growth in GDP by the end of the third quarter. Concerted effort was made by the Government to improve doing business in Nigeria and consequently increase foreign direct investment (FDI) into the country.
To that effect, FDI to key sectors of the economy stood at $4.145billion at the end of the third quarter in 2017 versus $3.574billion for the same period in 2016. (calculate percentage increase)
Some measures taken by the Nigerian Government to improve the investment climate included: Corporate Affairs Commission instituted the use of online company registration portal for registration of new companies and permanently closed the submission of manual applications.
The Central Bank of Nigeria established the investors’ and exporters’ foreign exchange (FX) window to improve liquidity in the FX market and facilitate timely execution and settlement for eligible transactions.
The year 2017 also saw key changes in the Nigerian Pension Commission’s (PenCom) regulation to allow for greater flexibility in the investments of infrastructure and PE funds. Specifically, the threshold for domestic investment by investible infrastructure funds was decreased to 60percent in 2017, from 75 percent in the 2012 regulations.
The southern region of the Africa continent attracted private equity deals worth $3.8billion at a volume of 284.
South Africa got the largest part of the deals transacted in the region as it attracted 73 percent or 207.32 of the deals at 74percent or $3.8billion.
South Africa experienced political instability and reshuffles of key government portfolios during the 2017, which adversely affected the region as many businesses are headquartered in the country. With a technical recession ending in the second quarter of the year and sovereign rating downgrades, growth expectations for South Africa were revised downwards during the period.
The election of the new president of the African National Congress (ANC) in 2017 was viewed as favourable by the financial markets, as demonstrated by the strengthened Rand. Prior to the election conference, there was uncertainty in the local PE environment as many prospective investors were unwilling to commit to new fund closes until they knew the outcome of the conference.
The major regulatory change in South Africa in 2017 was the enactment of the Financial Sector Regulation (FSR) Act. Once passed, the Act will introduce two new regulators — a prudential authority and a market conduct authority. The impact of the Act on the PE industry (particularly ongoing compliance costs) is still to be determined.
Eastern Africa also suffered a cut in private equity deals.
The region attracted 180 deals in volume and $2.4 billion in value, of which Kenya attracted 56 percent or 100.8 deals valued at 49 percent or $1.17 billion.
In Kenya, private equity investors adopted a “wait and see” approach to deals during the year compounded by some delays faced in obtaining financial approvals from government agencies, which in turn decelerated deal closing during the period. Investor confidence is on the rise following the outcome of the elections as is evident from regional / international PE firms opening local offices in Kenya.
The United Nation’s World Economic Situation and Prospects 2018 report estimates that Africa grew by 3percent in 2017, up from growth of 1.7 percent in 2016. The UN also projects Africa to grow by 3.5 percent in 2018 and 3.7percent in 2019, due to higher external demand, rising commodity prices, and improving domestic conditions.
The World Bank also projected economic growth for Nigeria to continue its upward trajectory to 3.2 percent in 2018 and to 3.5 in 2019, on the back of firming commodity prices and gradually strengthening domestic demand projects.
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