Quarterly M&A Dialogue@FF
| Frederick Fyle Group
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 according to a report from the African Private Equity and Venture Capital Association (AVCA).
The value of the 81 private equity deals reported stood at just US$ 700 million. A similar lag was recorded in the amount of private equity fundraising and number of private equity exits with US$ 1.1 billion raised and 13 exits. The slowdown in PE activity is a reflection of the economic uncertainty caused by the outbreak of the pandemic. Towards the end of the first half of the year, most African countries had recorded lower counts of infections compared to Europe and North America. However, fears of a mass outbreak led to waves of lockdowns and economic restrictions across the continent.
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. Perhaps capturing the growing concern around the under-funded 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.
In the East African region, the first half of the year recorded 56 deals valued at US$ 716 million comparable to 52 transactions in the same period in 2019 at a higher value of US$ 1.1 billion. The financial, technology, and health sectors had the most activity reflecting growing interest given the times. The performance of private capital markets continues to reflect the positive long-term growth prospects of the East African region and the potential yet to exploit. However, there is a significant fall in deal value albeit the increased number of deals recorded. This is mainly attributed to economic challenges, particularly liquidity, a trend expected to continue particularly for local player-led transactions on account of the pandemic.
The third quarter began with significant transactions in the financial services sector, a trend that has led to a total of 16 transactions in the East African region YTD with significant transactions coming from Kenya. The total number of deals stood at 68 with a disclosed value of US$ 935 million. This period also marked a sharp increase in the number of infections which were accompanied by extended lockdowns and social distancing measures, the effect of which was experienced later in the quarter, more specifically the month of August.
The month of August recorded the least number of deals YTD with a total of 4 disclosed deals heralding a period of muted activity as the effects of the pandemic on private capital markets became more apparent. A pattern may become more apparent given increased transaction timelines in the region. The quarter closed off mirroring August’s dampened performance with a total of 3 disclosed deals.
Despite the quarter’s muffled performance, movement in the region has renewed hope for a more favorable investment landscape. Most countries have eased lockdown measures, resuming a significant level of international travel and opening up several business entities. The opening of economies will significantly improve states of economies and steer growth forecasts to a more positive tangent. Additionally, resuming travel allows pending transactions to resume and potential transactions to be given up since most investors in the region are domiciled in the USA and UK markets.
Deals by Sector Q3:2020
In the East African region, the first half of the year recorded 56 deals valued at US$ 716 million comparable to 52 transactions in the same period in 2019 at a higher value of US$ 1.1 billion. The financial, technology, and health sectors had the most activity reflecting growing interest given the times
Deals by Country Q3:2020