Kenya registered the highest number of regional private equity (PE) deals last year, defying a volatile exchange rate environment and high interest rates.
According to data from the African Private Equity and Venture Capital Association (ACVA), Kenya remained a favourite in terms of the value of deals signed in East Africa.
Out of a total deal value of $4.5 billion (Sh450 billion) spread across Kenya, Tanzania, Ethiopia, Uganda and Rwanda last year, Kenya accounted for 71 per cent of the financing, raking in $3.25 billion (Sh325 billion) in paid capital and enterprise value.
“East Africa has made significant strides in recent years to become a region that facilitates ease of business and investment across its borders,” the report said.
“The results of this emphasis are clear to see in the value of deals done that have a regional focus rather than a single country within East Africa.”
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It added, however, that the number of single-country deals still exceeds regional deals, indicating that larger deals tend to be regionally focused, while smaller deals are single-country focused.
East Africa’s PE industry is still in its early stages, and Kenya has long dominated the scene in the lucrative capital class, often characterised by long-term maturity periods and illiquidity.
Data from a 2014 edition of the Private Equity Confidence survey, released by consulting firms Deloitte and Africa Assets, indicates that competition is growing in the country’s PE industry, with fund managers looking to SMEs and fast-moving consumer goods (FMCGs) for new deals.
According to AVCA, consumer businesses continue to attract the highest number of investors, with 40 per cent of the deal value channelled to FMCGs in the region.
The financial sector was the second-most popular category, taking up 35 per cent of the deal value.
However, AVCA also found that the number of exits by private equity funds rose to a record high of 44, up from 2014’s 39. But the number of PE firms that reported exits reduced marginally to 28 from 31 firms in 2014.
“Notably, there was a rise in exits within healthcare and retail sectors, which accounted for 5 per cent and 3 per cent of exits, respectively, between 2007 and 2013,” the report said.
Technology, telecoms and media, and resources sectors recorded the highest declines in exits after they accounted for 2 per cent, 2 per cent and 1 per cent of exits in 2014-2015, compared to 8 per cent, 10 per cent and 11 per cent, respectively, in 2007-2013.
South Africa, on the other hand, accounted for 39 per cent of exits in 2014 to 2015 — nearly four times the share of exists recorded by Nigeria and Kenya, which accounted for 10 per cent of exits each.
AVCA compiled data for the report from a total of 16 funds investing in East Africa, and acknowledged that the findings would have been more comprehensive if more responses from the selected sample had been factored in.
“Although more participation would have given us deeper insight, the results did prove useful to draw general conclusions,” the association said.
“We collected a total of 63 entry transactions concluded in the region which, while not a full complement of deals concluded, present a fair sample allowing some conclusions to be drawn on private equity activity in East Africa.”
PE is slowly emerging as a potential solution to funding for many SMEs in the country looking to raise growth finance.
Kenya’s strategic position as the economic, resource, management and logistics hub for the region provides local businesses with more visibility, making them appealing targets for venture capitalists.
Last month, Catalyst Principal Partners became the latest PE firm to reveal it has signed an investment deal with Kenyan manufacturing firm Orbit Chemicals.
The deal followed approval received from the Competition Authority of Kenya that allowed the capital injection. Orbit Chemicals manufactures household detergents, such as Stasoft and Axion.