Mr Ayisi Makatiani: CEO of venture capital fund, Fanisi. File
What you need to know:
Emerging Markets Private Equity Association says PE firms raised Sh123 billion for fresh investments in Sub-Saharan Africa last year.
Increased investor interest in the local market is expected to create more jobs.
Foreign investors have raised more than Sh120 billion for fresh ventures in Kenya and other regional markets, paving the way for local firms to reap big returns from share sales.
Increased investor interest in the local market is also expected to create more jobs by setting up new ventures or through expansion of existing firms.
Emerging Markets Private Equity Association (EMPEA) says PE firms raised Sh123 billion for fresh investments in Sub-Saharan Africa last year, an 8.7 per cent increase from Sh113.2 billion in 2011.
They include South Africa-based Ethos Private Equity that has raised Sh68 billion to be invested in Kenya, Tanzania, and South Africa among other target countries.
More than 10 PE funds targeting Kenya and the East African region have been formed in the past two years, in a period which development finance institutions (DFIs) have also stepped up their activities.
Data from EMEA indicate that PE firms have a cumulative Sh220 billion available for investment in the region.
Analysts say Kenya is one of the key targets of DFIs and the private equity firms, which has seen owners of mid-sized firms earn good returns when they sell to institutional investors.
“Valuations in Kenya are much higher compared to Uganda, Rwanda, Ethiopia and Tanzania,” said Eline Blaauboer, a partner at TBL MirrorFund, a PE firm.
“The higher prices have been due to the rising number of funds seeking growth in Kenya’s relatively stronger economy in the region.”
Kenyan banks, ICT firms, manufacturers and businesses in the consumer goods market lead in terms of higher asking prices, riding on their fast growth.
Coffee house Java, for instance, sold its 90 per cent stake to Emerging Capital Partners (ECP) last year in a deal estimated by industry players at tens of millions of dollars.
Kenya’s investor appeal is based on its relatively larger economy in the region and high returns posted by its fast-growing firms.
DFIs Norfund, FMO and Africinvest, for instance, earned a 66 per cent return last year when they sold their 22.4 per cent stake in Family Bank acquired in 2010 for Sh916 million.
While the rising valuations of Kenya’s SMEs have raised fears of capital flight to other neighbouring countries, some analysts say the country has yet to exhaust its attractiveness to foreign investors.
“The funds currently available for investments in the entire Sub Saharan Africa are still a drop in the ocean compared to the developed markets,” said Ayisi Makatiani, the CEO of Fanisi Capital.
“Kenyan entrepreneurs should take advantage of the new funds to expand or set up new businesses,” he said.
Data from EMPEA show that private equity penetration, as a share of GDP, stands at less than one per cent in sub-Saharan Africa. Israel has the largest PE penetration in the world, at 1.8 per cent.
Aside from providing profitable exits to founders of mid-sized firms, the rising investor interest is also expected to reverse the slowdown in new job creation by providing expansion capital to SMEs or creation of new ventures.
Data from the Kenya Investment Authority (KenInvest) shows that Kenyan and foreign firms created a total of 6,093 jobs in new projects last year compared to 13,289 jobs in 2011.
The number of new projects also declined to 103 from 130 as their value declined 61.2 per cent to Sh60.7 billion.
Among the new projects expected to create new jobs in the country include the construction of a middle-income estate by Pan African Housing Fund that is investing a total of Sh3.5 billion in regional real estate.
