Africa’s demographics spur Private Equity interest in financial services

Private Equity (PE) investors are being lured by the earnings opportunities in Africa’s financial services sector on account of the attractive population growth prospects.
This is heightened by the continent’s positive demographic characteristics and positive exits witnessed by PE managers in 2015.
According to Michael Rogers, the deputy global PE leader of Ernst and Young, exit multiples hit a nine-year high in the past year, with the financial services sector contributing 24 percent of the companies exited by PE firms in the last two years.
Despite having reduced from 76 percent in 2011 to about 66 percent in 2015 according to industry experts, the unbanked population remains huge and thus presents alluring growth opportunities.
The foregoing coalesces into the chief factor whetting the appetite of PE Investors (PEIs) in the continent’s financial services.
The other factors that industry sources posit to have led to increased PE interest in the sector are a growing middle class that is expected to boost income and drive earnings growth, and the decreased willingness of the banks to lend.
Corroborating the bullish outlook on the financial services sector, NonnieWanjihia Burbidge, the Executive Director of the East Africa Venture Capital Association, avers that private equity investment on the continent continues to grow as the confidence levels of investors in the Sub-Saharan African PE space soar with their increased long-term view of the of the region, albeit with a caution that, “. . . it can be expected that as the industry continues to grow and mature, competition for deals will increase, driving entry multiples higher.”
Similarly, according to a PE fund manager with the ARM Capital Partners, the outlook is positive for the sector, even though the funds may be having chequered fortunes in Nigeria at the moment.
“The fundamental long-term story of the industry is interesting”, he concluded.
This is also the position of the African Private Equity and Venture Capital Association (AVCA), who note,
“Notwithstanding the current uncertainty around emerging market economies, low commodity prices and depreciating local currencies, many PE investors in Africa have developed the requisite skills, experience and knowledge to continue to invest, grow and add value to portfolio companies.”
Apart from the financial services, AVCA maintains that other sectors will also be of interest to PE investors.
Their outlook is that, “other sectors that may be of particular interest include Infrastructure, Real Estate and Energy”, concluding that “West and East Africa should continue to remain attractive destinations for PE investment on the continent”
With a total investment of over $2.8 billion in 30 deals as at the end of June 2016, analysts say the African private equity sector is set to continue riding on the road of unquenchable growth.

 
INNOCENT UNAH