BY CHARLES ABUEDE
The total value of private capital deals reported in Africa reached a record high of $7.4 billion, representing a 118 percent increase over the $3.4 billion registered in 2020 and exceeding by 85 percent the annual average deal value of $4 billion between 2016 and 2020, states a recent report by the African Private Equity and Venture Capital Association (AVCA) which also provides insights into the deals.
The African private equity landscape has over the last two decades become increasingly recognised as an attractive and progressive region for private investment. Overall, the industry’s deal activity rose to 19 percent (CAGR 2016-2021), a growth the report said demonstrates a private capital industry maturing as businesses and economies across the continent transition from resilience to recovery.
The association’s annual African Private Capital Activity Report, described as a concerted effort to provide a deep insight into private capital fundraising, investments and exits in 2021, revealed that the total volume of private capital deals reported in Africa last year was 429, a 66 percent increase from 258 deals recorded in 2020, which also exceeded by 100 percent the annual average deal volume of 215, recorded between 2016 and 2020.
Similarly, private equity funding reached a record $4.4 billion in 2021, four times the year-on-year increase that also exceeded the annual average over the past five years by 63 percent. The report put the total value of final closed private capital funds between 2016 and 2021 at $18 billion.
According to AVCA, the report is an indication of the gradual maturation of private investment in Africa, which rose by 13 percent (CAGR 2016-2021), adding that the findings are a testament to the success and visionary work of firms whose pioneering missions encourage the growth of African economies through digital transformation, innovation with finance, climate-smart agriculture and attract local and global investments.
Providing a detailed overview of the venture capital market covering West, Southern, East, and North Africa, with insight into the deal sizes, economic landscape, and regulatory environment across multiple jurisdictions, the AVCA in the report found that in 2021, West Africa attracted the largest share of deals at 33 percent, followed by Southern Africa at 20 percent and North Africa at 17 percent.
The report also found that large multi-regional deals across the continent accounted for the largest share by value at 40 percent in the same year.
A breakdown of the deals by sector across various regions in Africa showed that the financial services sector was the most active by volume at 30 percent, and also attracted the largest share of deal value at 39 percent in the year under review. The rise of fintech contributed to the sector receiving the largest share of deals. With several traditional banks closed during the pandemic, many people turned to mobile money, digital banking applications and remittances to help support their families’ livelihoods and financing needs.
Data from the World Bank revealed that remittance inflows to sub-Saharan Africa rose in 2021 by 6.2 percent to $45 billion. According to the report, this trend supports the sector’s growth in Africa as financials’ share of deal volume and value climbed to 24 percent and 29 percent in 2019-2021, from 13 percent and seven percent respectively between 2016 and 2018.
However, in the space of five years (2016-2021), the total value received was dominated overall by the financial and utilities sectors as the largest sectors by value, attracting 19 percent and 18 percent, respectively, while the financials (20%), consumer discretionary (15%), industrials (12%), and information technology (12%) were the most active sectors by volume during the same period.
Abi Mustapha-Maduakor, chief executive officer, AVCA, remarking on the report, said, “the report highlights how Africa’s economy continues to be fertile ground with attractive investment opportunities for investors in search of yields. As innovation across financials, technology, energy, healthcare enables the pace and scale of pioneering companies – new alliances with local and international investors continue to progress our industry and Africa’s growth story.
“We are seeing new opportunities for partnerships with Africa and other regions of the world abound; Africa’s private capital industry shows no signs of slowing – these alliances propel African businesses and economies from resilience to recovery. The 429 deals reported across the continent in 2021 evidence a 66 percent increase from 2020, totalling $7.4 billion in value. We are delighted to see the growth in fundraising, volume and value of deals across PE and VC, and we look forward to continuing our role, supporting the industry in a reinvigorated era of growth,” he said.
Elsewhere, the report highlighted that 36 African PE exits were reported in 2021, a 13 percent increase compared with 2020. This increase reflects the resilience of the industry returning to onward growth.
In line with trends found in 2020 by AVCA, exit to trade buyers was the preferred exit route at 50 percent across the continent. Sale to PE and other financial institutions, the second exit mean, represented 31 percent of the total number of exits reported in 2021 – with exits by public offering accounting for three percent of the total volume of exits reported in Africa over the course of 2021.
The report also identified 2021 as a standout year by deal value for VC deals across the continent. The cumulative value of VC deals reported in Africa reached $5.2 billion in 2021 – this equates to 4.9x year on year rise from 2020, and it comprises 51 percent of the total value of VC deals recorded on the continent throughout the past eight years, between 2014 and 2021.
The annual increase is a positive upward trend, considering the downward funding slope experienced in 2021, which saw a marginal tightening of investor funds due to the economic fallout brought on by the Covid-19 pandemic.
However, Venture Capital in Africa, the report continued, also showed strong growth, after experiencing accelerated growth in the last few years.
As also observed in 2020, 2021 reported an increase in VC deals in Africa – more than doubling, to reach a new high of 650 deals. This corresponds to a 104 percent year on year increase, outperforming the past eight years’ CAGR of 32 percent.