African Private Equity Rebound Mooted
Private equity in sub- Saharan Africa is expected to make a strong comeback next year, according to a new study released by KPMG yesterday.
Warren Watkins, head of private equity at KPMG for SA and Africa, said that “the private equity market in sub-Saharan African over the past two years has been characterised by unwilling sellers and an inability of fund managers to invest their funds. As a result the appetite for deals has been reined back significantly.”
Watkins said while market participants were still cautious about this year, a consensus was building that next year was likely to show a robust increase in activity.
The study was carried out among 119 private equity industry executives at the Unquote Private Equity Congress in Cape Town last month.
More than 70% of respondents expected the larger R3bn-plus deals to be making a comeback from next year onwards, coinciding with a convergence of the pricing expectation between buyers and sellers.
The current price expectation gap had acted as a drag on the market. Almost half of respondents put the gap at 20%- 30 % with a further 19% putting the gap at more than 30%. Sellers seemed to believe in yesterday’s prices, or tomorrow’s improved prices, and were still reluctant to sell.
Market figures collated by KPMG SA and the South African Venture Capital & Private Equity Association (SAVCA) show fund-raising activity in sub-Saharan Africa almost tripled from 800m in 2005 to more than 2,2bn in 2008. During the first half of last year, fundraising reached 1bn, equivalent to the same period in 2008.
In terms of single- country funds, SA still led the region, representing 11 % of all funds raised by dollar value in 2008. Some of the biggest brands on the continent, including Brait Private Equity and Ethos Private Equity, were rooted in the South African market.
Measures to reform exchange control regulations were welcomed by JP Fourie, CE of SAVCA, as giving a further boost to a recovery of the private equity market. However, Fourie cautioned that any recovery would be gradual. “While we echo the views in the survey that the signs are good for a recovery in 2011, there won’t be a quick uptick. It is going to take time.”
When the market picks up, 36% of those polled thought that manufacturing and infrastructure would top the list of choices for investment.