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What does Africa’s private equity landscape look like in 2021?

Rob Withagen
By Rob Withagen
co-founder and CEO of Asoko Insight

Rob Withagen is co-founder and CEO of Asoko Insight, Africa’s leading corporate data and engagement platform, providing global investors, multinationals and development institutions the most effective route to discover, shortlist and engage their target universe of African companies. Learn more at www.asokoinsight.com.

Posted on Thursday, 8 July 2021 12:48

Britain's Prime Minister Boris Johnson, right, meets the President of Nigeria Muhammadu Buhari during the UK-Africa Investment Summit in London, Monday, 20 Jan 2020. (Eddie Mulholland/Pool Photo via AP)

A universe of over 600 investors are active in deal-making across Africa, in what is an increasingly vibrant and mature sector.

The continent itself hosts over 400 private equity, venture capital and asset management firms, while another 200 firms from around the world have a strong Africa focus to their portfolios.

By documenting the buy-side and sell-side relationships on investment activity through our African deal tracking over the past six years, Asoko Insight has collated details on active deal-makers, creating an increasingly comprehensive picture of the investor landscape.

 

Who is investing, and how much?

Investors are spread across the continent, with offices concentrated in major markets, led by South Africa, which is home to 174 investor headquarters or regional head offices. Other major hubs are Nigeria (63), Kenya (48), Mauritius (24), Egypt (20). Outside of Africa, the US has the largest number of investors (83) with significant deal activity on the continent, though as a whole, Europe has a slightly larger number of investors (87).

Asia and the Middle East are comparatively smaller source markets for Africa-focused investment, with 25 investors profiled. China is the leading Asian market for investors, though their activity is overshadowed by the significant investment of the Chinese state under the auspices of the Belt and Road initiative.

Assets under management (AUM) are known for approximately a third of investors, ranging from under $1m to well over $1bn. Just under 10% of firms are known to manage more than $1bn in assets, with some 50 firms in this category. Another 65 of those with known AUM, manage less than $1m, leaving about 40% of firms in between.

Investor preferences are recorded for a portion of the 600-strong dataset, covering sector and geographical focus as well as targeted ticket size. Although the majority of firms are generalist, others have narrower targets. In terms of geography, Southern Africa is the most common focus area for investors, while the smallest number reveal a Central African focus.

As is borne out in investment figures, financial services and IT are the top two sectors of focus among investors. Deal analysis by Africa Venture Capital Association (AVCA) shows that investment in tech-enabled companies accounted for 55% of all deals in Africa in 2020, while financial services, IT and consumer discretionary made up 47% of deal volume that year.

 

African investors are increasingly aligning their investment strategies with the strong demand for capital in the middle market. Close to 25% of investors record a preference for deals between $1m and $5m, followed closely by a preference for ticket sizes of $5m – $10m and $10m – $25, at just over 20% each.

Effects of Covid-19

In 2020 some $3.3bn was invested into businesses on the continent, according to AVCA, slightly down on the 2019 figure of $3.8bn, but a strong showing given the challenging conditions of the year, which the world spent largely in lockdown and focused investor attention on supporting portfolio companies make it through the storm. Reviving the growth trajectory investment had been experiencing prior to the pandemic will be crucial to the continent’s recovery.

Global growth estimates show sub-Saharan Africa making the slowest progress of any region coming out of the economic crisis, with the IMF forecasting 3.4% growth for the region in 2021, compared to a global average of 5.5%.

With African economies driven by the SME sector, mid-cap deals will be increasingly crucial to support development of the private sector. Africa’s vibrant investor universe is well placed to step up to the test.

Rob Withagen is co-founder and CEO of Asoko Insight, Africa’s leading corporate data and engagement platform, providing global investors, multinationals and development institutions the most effective route to discover, shortlist and engage their target universe of African companies. Learn more at www.asokoinsight.com

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