• Saturday, July 20, 2024
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Nigeria drives Africa PE deals as focus shifts from S/Africa


Nigeria is emerging as a Private Equity (P.E) powerhouse on the African continent as deal flow shifts to West Africa and away from the traditional hub of Southern Africa.

Deal activity on the African continent remained strong in 2014 with $8.1bn worth of deals completed – the second highest on record – a new report by the AfricanPrivate Equity and Venture Capital Association (AVCA) shows.

The AVCA deal tracker reveals a shift in investment activity, with West Africa now receiving the highest share of PE investments by number, providing evidence of a gradual widening of investment activity outside South Africa.

West Africa’s share of private equity transactions on the continent grew from 22 percent between 2007- 2010 to 25 percent from 2011-2014: whilst South Africa’s share dropped from 28 percent to 24 percent in the same period.

“Supported by local and foreign institutional investors, African private equity firms are increasingly able to mobilise much-needed capital to invest in a diverse range of companies, countries and sectors, across the vast African continent,” Dorothy Kelso, Director of Research at the African Private Equity and Venture Capital Association said.

The main sectors attracting private equity investments in Nigeria continue to be Fast Moving Consumer Goods (“FMCG”), Financials and Industrials, which have accounted for around 60 percent of Africa private equity transactions by volume from 2007-2014.

Nigeria and West Africa’s rise to the top of the P.E charts is due in part to a number of significant deals announced in 2014 including the $3.1bn worth of funding secured by IHS Towers, the Nigerian based mobile infrastructure provider, from existing and new investors in 2014.

There was also the $147 million investment in Diamond Bank by the Carlyle group and the $630 million deal by Helios Investment Partners and other investors for Helios Towers Africa.

Private Equity consists of investors and funds that make investments directly into private companies.

Capital for private equity is often raised from retail and institutional investors, and can be used to fund new technologies, expand working capital within an owned company, make acquisitions, or to strengthen a balance sheet.

Private Equity firms and opportunities are mushrooming in Nigeria as the African growth story meets investors who have suddenly realised they are under-invested in one of the last frontiers of growth in a world of increasingly correlated financial assets.

Nigeria’s economy should expand by 5.3 percent in 2015, according to the International Monetary Fund (IMF) which is 20o basis points higher than the global growth average.

Deals are happening in more sectors of the economy as the traditional sectors expand in size, creating new sectors and opportunities along the line.

A rebased calculation of the country’s gross domestic product (GDP) in 2014 boosted the size of the economy by as much as 60 percent to $424 billion, lifting Nigeria ahead of South Africa in the World Bank’s global rankings, and showing the true potential for businesses in the country.

The strong growth of Nigeria’s non-oil sector is also providing a lynchpin for PE and VC deals.

“Mobile data and payments are quite interesting. We have made a lot of bets in that area,” said Yemi Lalude, founder and Managing Partner at Adlevo Capital, a technology focused P.E firm, at a recent AVCA conference.

Private Equity firms have had some success in emerging growth sectors in Nigeria in the past.

PAGA, Nigeria’s largest mobile payments network has received venture capital funding which has enabled it to grow its business to the 1 million users mark.

Interswitch Nigeria’s leading payments providers received funding to the tune of $110 million from PE firm Helios Investment Partners, giving firepower to Interswitch in its quest to develop itself into an African wide payments processor, using its signature Verve card.

The outlook for private equity in Africa remains exceptionally positive for 2015, according to AVCA.