Private-equity firms in Africa need to ramp up value-creation efforts if they are to keep delivering attractive returns amid a challenging macro environment, says Bain & Company.
The private-equity industry was engaged in "soul searching", as funds carefully considered how to operate in more difficult conditions, said Andrei Vorobyov, head of Bain & Company’s private equity practice in Africa.
After a very strong year for deals in 2014, private-equity activity had been more subdued, hurt by the decline in commodity prices and renewed political uncertainty in countries such as SA and Nigeria, Vorobyov said.
Funds were now identifying "sweet spots" and focusing on how they could exercise their value-add muscle, he said.
Private-equity funds in Africa raised $2.3bn in 2016, according to Bain’s global private-equity report 2017.
Globally, private-equity firms raised $589bn in 2017, broadly in line with 2015, as investors were "eager to recycle gains into their best-performing asset class", says the report. Of this, $221bn was raised by buyout funds, which now have dry powder (effectively cash reserves) of a record $534bn.
Multinationals remained interested in Africa, Vorobyov said. Egypt and Morocco were recent attractions, while interest in Nigeria persisted — for deals at the right price — given the large size of its population, he said.
"There is still a lot of activity in SA where the [private-equity] industry is more developed."
Credit rating downgrades would hurt confidence, but private equity was a long-term asset class, Vorobyov said. "We still encourage funds to look for the right assets and targets."
More than 200 private-equity deals were done in Africa in 2016, a third of these in SA, said the Southern African Venture Capital and Private Equity Association. The telecommunications and technology sectors had the most activity.
Meanwhile, corporate deal activity in sub-Saharan Africa had been buoyant in 2017, with inbound mergers and acquisitions — led by the US, China and Switzerland — reaching a seven-year high of $6.4bn in the first quarter, according to Thomson Reuters.
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