RENEW Strategies

The State of Private Equity and Venture Capital Sector in East Africa 

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Renata Makhoul
| June 22, 2017

The private equity and venture capital sector has been growing sharply in East Africa. The number of firms in this space doubled in 2015 and 2016, as well as funds raised for East Africa investments have also increased. There was an estimated total of USD 1.1billion raised for private equity investment in East Africa for the past two years.

The region has seen impressive growth in the number of strong private enterprises with scalable business models and we have seen a growing appreciation on the strategic value of private equity investments. Especially with second generation business leaders who are eager to scale their businesses to the next level of growth, as we can observe in RENEW’s portfolio companies such as Mama Fresh.

East Africa has presented positive economic growth over the last years, and Ethiopia is certainly leading this growth trends. According to the most recent African Economic Outlook 2017, published by the African Development Bank Group ADBG “FDI should increase slightly in 2017, but remain volatile due to domestic and global risks FDI flows to Africa are expected to grow by about 2% in 2017, reaching USD 57.5 billion. Ethiopia is expected to be one of the largest (USD 4.4 billion).”
KPMG and EAVCA recently surveyed 28 private equity and venture capital funds with activities in East African Countries. Here are some of the highlights from the report published this month:

  • A total of 115 PE backed deals in East Africa have been reported by respondents from 2007 to 2016 (36 were reported from 2015 to 2016), with an estimated value of over USD 1.4 billion (USD 600 million for the 36 deals in 2015 to 2016). 
  • Increase in the average investment size grew to USD 17 million in 2015 to 2016 from USD 10 million as per 2014 Survey. 
  • An increased number of exits over the last two years.
  • There has also been a shift in exits method -  7 of the 34 exits have been through secondary exits to financial investors and 13 through sale to strategic investors. There has been a decline in the share buyback method from 11 in 2007 to 2014 to 2 in 2015 and 2016. 
  • Of the responses received, the average reported actual IRR has been 19%, 3% lower compared to a target IRR of 22%.

As PE activities increase in East Africa, the region still presents many opportunities. The number of PE deals recorded in the region has steadily risen over the years and investors foresee new opportunities in rapidly expanding markets, including Ethiopia and Tanzania, which should replace more traditionally favoured destinations such as Kenya.

Please see the link to the full report:  KPMG and EAVCA Private Equity in East Africa Survey Final 2017

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