African PE opportunities come in small packages


This is according to Nick Tims, managing director of Investec Asset Management and author of the report entitled, Private Equity in Africa.

He explained that capital shortages, underdeveloped capital markets and ongoing generational changes in consumer and resource demand create the perfect storm for the private equity opportunites in frontier markets.

Africa therefore epitomises this paradigm and private equity players are only beginning to tap into the continent’s opportunity.

(WATCH VIDEO: Africa’s private equity landscape)

The report indicated that a new phenomenon has risen, where global private equity players are looking to allocate to Africa, alongside traditional and South African players that are extending their mandates north of the border.

“The last decade has seen tremendous economic development and increased financial sophistication, but also, in places, a stubborn lack of change, economic and geopolitical setbacks, and mismatches of capital supply and demand. Yet, whilst the challenges of investing across the continent are still significant, opportunities abound, and private equity has the power to influence growth and effect real change,” said Tims.

(READ MORE: Private equity is still misunderstood in Africa)

He added that the larger end of the African PE market is currently overcrowded while the smaller number of deals combined with extra interest by international corporate buyers causes a squeeze in valuations.

“Many private equity fund buyers have increased their own direct investment programmes, especially development finance institutions and also the dedicated African fund of funds. In many cases they are all looking at the same small number of available deals,” he explained.

“However, moving down the deal size spectrum into smaller markets reveals an abundance of opportunity. In many ways, this is the ‘sweet spot’ for private equity opportunity on the continent, something recently highlighted by the International Finance Corporation. The overall picture is still one of an undeveloped asset class in a huge opportunity set.”