Long-term returns for PE firms in Africa can be far higher than in developed markets
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Billions of capital may be invested in Africa by private equity firms in the next five years, according to a new study.
There was a significant increase in PE activity in Africa in the last few years, according to a report titled “A growth engine: Trends and outcomes of private equity in Africa”. The report, commissioned by Baker McKenzie with The Economist Corporate Network, said that from 2010 to 2016, private equity firms invested around US$25.6bn in Africa.
Baker McKenzie also said that PE deals in Africa are “growing from a low base equivalent to 0.18% of Africa’s GDP in 2016.” Every 0.01% increase means investment of at least US$200m in Africa, and the equivalent investment for the same percentage point increase “could easily reach $1.1bn over the next five years,” the firm said, as Africa’s total GDP could also grow within the period.
Not only are PE firms profiting from investments, Africa is also significantly benefiting from the capital flowing into the region, said Scot Nelson, Baker McKenzie private equity partner.
“The long-term opportunities across African economies for private equity are extremely robust and demonstrate long term value creation and returns. Returns can be far higher than in developed markets, and at the same time private-equity investors play a catalytic role in Africa,” said Nelson. “Investment in this sector tends to focus on growth capital, helping companies to improve governance and strategy, expand their footprint and contribute positively to the region’s broader commercial ecosystem.”
The value of private-equity fundraising from 2010 to 2016 averaged US$2.5b per year, the report found. The top five sectors by investment in the period are telecoms, media, and communications (US$5.5bn), business services (US$3.7bn), energy and utilities (US$2.2bn), materials (US$2bn), and consumer discretionary (US$1.6bn).
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There was a significant increase in PE activity in Africa in the last few years, according to a report titled “A growth engine: Trends and outcomes of private equity in Africa”. The report, commissioned by Baker McKenzie with The Economist Corporate Network, said that from 2010 to 2016, private equity firms invested around US$25.6bn in Africa.
Baker McKenzie also said that PE deals in Africa are “growing from a low base equivalent to 0.18% of Africa’s GDP in 2016.” Every 0.01% increase means investment of at least US$200m in Africa, and the equivalent investment for the same percentage point increase “could easily reach $1.1bn over the next five years,” the firm said, as Africa’s total GDP could also grow within the period.
Not only are PE firms profiting from investments, Africa is also significantly benefiting from the capital flowing into the region, said Scot Nelson, Baker McKenzie private equity partner.
“The long-term opportunities across African economies for private equity are extremely robust and demonstrate long term value creation and returns. Returns can be far higher than in developed markets, and at the same time private-equity investors play a catalytic role in Africa,” said Nelson. “Investment in this sector tends to focus on growth capital, helping companies to improve governance and strategy, expand their footprint and contribute positively to the region’s broader commercial ecosystem.”
The value of private-equity fundraising from 2010 to 2016 averaged US$2.5b per year, the report found. The top five sectors by investment in the period are telecoms, media, and communications (US$5.5bn), business services (US$3.7bn), energy and utilities (US$2.2bn), materials (US$2bn), and consumer discretionary (US$1.6bn).
Related stories:
Offshore investors reign in private M&A ‘mega deals’ in 2016
Big Six firm sees these factors driving M&A in the mining sector
