Category Investments

Private Equity – How does Africa fare in tough times?

05 March 2021 Gilbert Anyetei, Senior Associate in Alternative Investment Services at RisCura
Gilbert Anyetei, Senior Associate in Alternative Investment Services at RisCura

Gilbert Anyetei, Senior Associate in Alternative Investment Services at RisCura

RisCura launches Private Equity section of Bright Africa 2020

Despite erratic fundraising and mixed risk and growth outlooks, deal activity in African private equity is growing.

This is according to Bright Africa 2020, a research initiative by purpose-driven global investment firm, RisCura.

“The private equity focussed arm of the research was the first section released today as part of a series of Bright Africa 2020 focus areas. It highlights the current state of the private equity market in Africa and trends in prices paid for private equity assets over time,” says Gilbert Anyetei, principal researcher and senior associate for alternative investment services at RisCura.


Before the significant market contraction in early 2020, private equity fundraising activity across Africa continued to show strong growth. The total value of 2019 private equity fundraising reached USD 3.8bn, up from USD 2.7bn in 2018, and the second-highest year of fundraising since 2010.

However, funds raised specifically for investment in South Africa, per the SAVCA 2020 Private Equity Industry Survey, fell approximately 48% from ZAR 7.1bn in 2018 to ZAR 3.7bn in 2019.

“This stands in stark contrast to the highs reached across Africa in 2019 and illustrates the impact of the uncertainty and economic distress caused by the COVID-19 pandemic. However, recent benchmark interest rate cuts coupled with the resilience of private equity compared to other asset classes are potential silver linings to cushion the impact of these events, “ says Anyetei.

Deal Activity

Total private equity deal activity has steadily increased over the last two years as fund managers continued to deploy the significant amount of capital raised in the market during earlier fundraising years.

Kenya continues to dominate East Africa’s private equity investment landscape because of its large and diversified economy, pro-business government policies, and relatively low dependence on extractive commodities.

Deal activity in Nigeria, the largest economy in Africa, increased moderately by 13% for the period ended June 2020, compared to the 50% increase experienced for the period ended June 2019.

While South Africa historically has made up a large proportion of private equity transaction activity, its contribution has reduced significantly from 49% as at June 2010 to 26% as at June 2020. Over the past three years, its share of transaction activity has settled into a relatively consistent average of 27%, despite the country’s limited growth prospects and increasing risk profile.


The median EV/EBITDA multiples of listed equity across Africa (excluding SA) have trended downwards since the end of 2014. Conversely, median private equity EV/EBITDA multiples across Africa (excluding SA) have steadily increased since June 2012. Changes in growth expectations and perceived risk do not appear to adequately explain this. Growth prospects are currently muted when compared to earlier in the decade, and although there has been some decrease in risk in specific countries over this period, it does not appear to have driven the price increase.

For the last two years, private equity multiples have exceeded those of listed multiples. Although this appears counter-intuitive because of the liquidity discount that should apply to prices in the private markets, the lack of liquidity in many African listed markets, the high cost of compliance, and the resultant lack of capital available to these markets complicate a direct comparison.

In South Africa, in line with listed pricing, the median private equity EV/EBITDA multiple has been steadily decreasing since June 2018. Due to the measures implemented to limit the spread of the virus, the resulting decline in economic activity is expected to lower asset quality and earnings, as seen in the decline in the median private equity EV/EBITDA multiple from December 2019 to June 2020.

Muted asset prices directly reflect South Africa's poor growth outlook, an increased risk profile, and the impact of the pandemic. The average EV/EBITDA multiple paid for a private equity asset is currently the lowest it has been since we started gathering data more than ten years ago. However, the asset class has a proven track record of outperformance in weak economic growth and market volatility. Combined with current low prices, this may indicate that funds currently deploying capital will return good performance relative to other asset classes.

When looking at the prices of African private equity assets excluding South Africa, it can be difficult to understand price movements.

“It appears that the significant amount of committed capital has had a stabilising effect on pricing, which is likely to survive short-term changes in funding levels and risk profile. However, the committed capital model can only delay the efficiency of markets, and prolonged decreases in fundraising and risk outlook are likely to filter through to pricing eventually,” says Anyetei.

The sharp decrease in the fundraising experienced because of the pandemic and resultant economic slowdown is expected to continue for at least 18 months. If these trends do continue, prices may prove to be less buoyant going forward.

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