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African private equity targets IT as fundraising edges up

Proving that infrastructure remains key.

The amount of cash raised for private equity deals in Africa rose for the first time in three years in 2018 as information technology led investor interest, according to a new report. 

Fundraising increased to $2.7 billion from $2.4 billion in 2017, the London-based African Private Equity and Venture Capital Association reported on March 14. The amount had slid from $4.5 billion in 2015.

IT accounted for the most deals, at about 19% or 35 of the 186 total, while communications services delivered the highest value at about 27% or $945 million. The total value of 2018’s African private equity deals fell to $3.5 billion from $3.9 billion in the previous year, according to the report. 

Source: 2018 Annual African Private Equity Data Tracker, produced by the African Private Equity and Venture Capital Association

Information technology’s share of private-equity deal volume increased from only 10% in 2016 and the trend is expected to continue, association head of research Enitan Obasanjo-Adeleye said by phone from London. 

“There is a view that Africa can leapfrog technology in areas by using mobile phones, for example, instead of physical infrastructure for distribution and reaching out in areas where there are no bricks-and-mortar banks, for instance,” Obasanjo-Adeleye said.

One example is the $47.5 million investment by San Francisco-based TPG Capital in Cellulant, a payments company from Nairobi providing a one-stop digital payments platform. Likewise, London-based Helios Investment Partners backed Egypt’s TPay Mobile operating across 15 African countries with low banking penetration and high mobile phone adoption.

The uptick in fundraising showed private equity remained relatively stable in Africa as companies seek investments to expand technology in business and consumer markets. The continent features many enterprises eager to tap a so-called rising middle class as education improves and incomes increase. Obasanjo-Adeleye said the association expects fundraising this year of between $2 billion and $3 billion.

Increased competition

“Fundraising may be more challenging this year because there’s more competition for investors’ cash from first-time funds and established funds back in the market,” she said.

Exits, or the disposal of private equity assets through sales or stock index listings, fell slightly last year to 46 from 52 in 2017 as, in South Africa, the process halved last year compared to the previous five years, according to the report. Sales to trade buyers were the most common exit routes, the association said.

Investing in utilities was second to IT in deal value, comprising 21%, followed by energy at 14%, the report showed. In the number of deals, consumer staples and consumer discretionary led the way, at 15% and 14% respectively. 

The private equity industry in South Africa, the continent’s most developed economy, may be spurred this year by more economic and political clarity after national elections in May, the association said. Similarly, in Nigeria, the continent’s largest economy, recent national elections should provide stability after a cabinet is appointed, the group said. 

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