PE deals in East Africa up 50pc but value lags behind

Old Mutual bought Sh15.7 billion stake in UAP from private equity firms Abraaj Group, AfricInvest and Swedfund last year, which also saw other big ticket deals. PHOTO | FILE
Old Mutual bought Sh15.7 billion stake in UAP from private equity firms Abraaj Group, AfricInvest and Swedfund last year, which also saw other big ticket deals. PHOTO | FILE 

The number of private equity deals in East Africa rose 50 per cent in the first four months of 2015 compared to the same period last year even as the value of transactions failed to match last year’s numbers, according to newly released data.

Burbidge Capital says that the region completed 19 PE deals in 2016 compared to 12 in the four months to April 2015.

The value of deals, however, fell substantially to Sh12.4 billion ($123 million) compared to Sh73.5 billion ($728 million) by April 2015.

Last year’s deal pipeline benefited from big ticket deals such as Helios Partners’ exit from Equity Bank that earned the British PE firm Sh50 billion, and Old Mutual’s Sh15.7 billion purchase of a stake in UAP from PE firms Abraaj Group, AfricInvest and Swedfund.

“In private equity, seven investment deals in April (19 deals year to date) were announced in the banking (two), IT, online lending, logistics and manufacturing sectors in Kenya and in the agribusiness sector in Ethiopia,” said Burbidge Capital in their East African financial review for April.

“In mergers and acquisition it was all a Kenyan affair with six deals (15 deals year to date) being recorded in the insurance, beauty, e-commerce, hospitality, beverage and logistics sectors. One joint venture was witnessed in the hospitality sector in Kenya.”

In April, the UK development finance institution CDC Group announced it had bought a 10.68 per cent stake in Kenyan tier II bank I&M Holdings from Germany’s DEG and Proparco of France.

Other significant PE deals in Kenya this year include the Sh2 billion investment in TransCentury by New York-based Kuramo Capital Management in March, which went towards settling the listed firm’s obligation to its convertible bond investors.

Also in March, third tier Fidelity Commercial Bank said it had agreed to sell an equity stake to UK PE firm Duet Group for Sh1.9 billion, doubling the bank’s core capital base to more than Sh3.8 billion.

According to Cytonn Investments, PE investment in Kenya is likely to see an upward surge in the rest of the year, as foreign investors are attracted by higher returns on offer compared to global averages.

“Financial services, energy, healthcare, education and IT continue to be the main sectors attracting private equity activity with infrastructure, real estate, and natural resources gaining ground.

“We remain bullish on PE as an asset class given the rapidly increasing demand driven by the rising middle-income class in Africa, attractive valuations in the private sector, and better rates of return to investors with higher economic growth projections compared to global markets,” said Cytonn in their May 2016 markets summary.

For mergers and acquisitions, this year has seen 15 deals valued at Sh21.2 billion in the region, compared to 13 deals valued at Sh33 billion recorded in the four months to April 2015.

There have only been two joint venture investments , one corporate bond and two private share placements this year, all valued at Sh8.7 billion ($86 million).