African private equity (PE) growth expectations have increased as risk perceptions are lower, according to the latest bright Africa report released by investment firm RisCura.
The report reveals RisCura’s research results covering fundraising, transaction activity, pricing and investor focus, with the latest findings pointing to a favourable shift in PE deal sentiment in Africa.
“Growth expectations have increased, while risk perceptions are lower and investors are focusing on higher-quality deals compared to 2015. This resulted in PE deal multiples growing to 8x Enterprise Value (EV)/EBITDA in Sub-Saharan Africa,” said head of independent valuations at RisCura Heleen Goussard.
Listed equity markets in Africa, on the other hand, have presented a less encouraging trend, with most of these markets experiencing falling EV/EBITDA multiples well into 2017. This means that valuations in these markets, including in Africa’s largest economies, have declined by as much as 38 per cent since 2015.
The interconnected nature of the modern economy has in the past always resulted in movements in African markets being correlated with those of the rest of the world. Africa’s listed multiples are diverging from the world’s other markets, which have been on a clear upward trend since 2014.
Cost of equity has increased by 6.4 per cent in Nigeria and 6.5 per cent in Egypt. As expected, significant currency depreciation and decreased values of commodity exports amplified the risk associated with these countries. In South Africa, the positive impact of cheaper oil imports was offset by detrimental political risk leaving the country’s cost of equity relatively unchanged over 2016.
The number of PE deals increased by 25 per cent, pointing to “relentless” investor interest, despite 2016 being characterised by difficulties in oil producing countries, widespread political tensions and currency depreciations. A record level of fundraising in 2015 left investment managers well-positioned to put cash towards attractive deals in 2016.