Kenya retains top spot in 2013 for PE deals in the region

26.3.2014 | Africa Asset Management News

Kenya has retained the top spot as a destination for international investors in the region last year, according to the 2014 East African Private Equity Confidence Survey from Deloitte and Africa Assets.

Kenya attracted 12 private equity (PE) deals last year (up from six in 2012), valued at over Sh9.6bn ($110.79m).

This is out of a total of 26 deals recorded in the region last year.

According to the survey, most of the deals focused on agribusiness, healthcare and the financial sector and Kenya accounted for 46% of the total number of deals in Eastern Africa and 69% of total reported values.

They key deal in Kenya in 2013 related to Norway’s Norfund and Africa Infrastructure Investment Manger investment of $150m – of which $90m would be funded by debt from Standard Bank Group – to build a wind power project.

Mercy Randa, managing partner at P&L Consulting, who specialise on financial communication, said there are several key indicators for investor confidence in Kenya.

Firstly, Kenya has a stable government which not only has plans for reforms, but is actively engaging with investors, both local and foreign, she said.

She also pointed out that there has been stability in the market over the last two years, with equities market on an upward trajectory.

“The current market capitalization for the NSE is Sh2trillion ($23bn), with a daily turnover of Sh400m ($4.6m). It’s the strongest market in the region. NSE also launched the Growth and Emerging Market Segment (GEMS) which we anticipate will gain a lot of traction this year to augment the main market. There is a lot of opportunity for investor looking for vehicles from big deals to mid-size deals,” Randa said.

On the macroeconomic side, she said: “Energy has been identified as the number one catalyst for economic growth. The government has doubled its efforts to ensure that they achieve the +5000MW by 2016. This will fire up industrialization, strengthening the markets.”

The Deloitte survey also found that the number of deals in the SSA region last year grew to 84, a 44.8% increase from 58 deals disclosed in 2012, with most deals being struck in East Africa (26) followed by West Africa (24).

Southern Africa and Central Africa recorded 19 and seven deals each, with five deals being cross-regional and a further three being continental.

East Africa was the most attractive for PE funds, according to the survey, with four out of the top eight countries with most deals in SSA. Kenya, Rwanda, Uganda and Tanzania had 23 deals collectively out of the total 51 deals for top eight countries in the region.

Despite the huge number of deals in East Africa however, smaller deal sizes resulted in lesser value. Only 46 deals out of the 84 recorded disclosed their worth, amounting to $3.69bn, the survey said.

East Africa’s $163m worth of deals trailed West Africa’s $545m and Southern Africa’s $491m.

The value of continental deals was the highest at $1.85bn, followed by cross-regional deals worth $678m.

“With all the optimism in EA, the market is still not ready to accommodate PEs with big appetites. $+60m deals are had to come buy that often. An investor would have to be buying a company off the securities exchange for a deal of that magnitude. However, the market is quickly crystallising and soon it will provide a solid market for large size deals,” Randa said.

“Investor need to be able to evaluate from the onset whether an investment is ready for PE or will need longer lead time before they realise any returns. Most investments in SSA (excluding SA) still require longer lead time than the traditional PE investment cycle, hence greenfield investment companies are more popular that PE,” she added.

The biggest deals were recorded in infrastructure and extractive industries, but consumer-focused deals and agribusiness remain popular.

Funds are looking at banking, fast-moving consumer goods, healthcare and education as some of the routes to reach down-market, according to Deloitte’s results.

Deloitte said that despite the growth in this asset class in SSA, “the PE industry is still in its nascent stages compared to other more advanced emerging markets.”