Early-stage investors, while taking on more risk in case the businesses fail, stand to make outsized returns if the start-up becomes a success and its value rises in due course.
Kenya accounts for the lion’s share of deals across various categories including private equity.
This year, the corporate finance advisory firm expects private equity activity to remain robust, driven by demand for capital from local businesses.
Early-stage venture capital (VC) investments recorded the biggest growth in new deals into East Africa last year, targeting the financial, agribusiness and ICT sectors which have recently offered high growth potential.
An analysis of deals carried out by investment adviser I&M Burbidge Capital shows that VC deals jumped from 16 in 2020 to 29 last year.
This contrasted with the slowdown in deals involving later stage private equity, which fell by three to 38, development finance institution (DFI), down from 16 to nine, and mergers & acquisitions which dropped from 26 in 2020 to 17 last year.
“The region has witnessed a shift towards early-stage investments, with 29 VC transactions being recorded, with a total disclosed deal value of $56.28 million (up from $39.07 million in 2020) and median deal value of $2.30 million ($2.28 million in 2020),” said I&M Burbidge Capital in its 2021 annual financial review.
“The foreign-led merger and acquisition activity dampened due to the availability of cheaper cost of capital (including debt) in more developed nations, making it easier and more attractive to carry out M&A activity in the developed nations rather than the emerging ones.”
Early-stage investors, while taking on more risk in case the businesses fail, stand to make outsized returns if the start-up becomes a success and its value rises in due course.
Kenya accounts for the lion’s share of deals across various categories including private equity.
This has been helped by Nairobi’s position as the regional financial hub, good connectivity to other global capitals and a thriving SME sector which provides a steady pipeline of investment opportunities.
Last year, the country hosted 76 deals out of the total of 110 for the region, followed by Rwanda at 10, Uganda (9), Tanzania (8) and Ethiopia at seven.
This year, the corporate finance advisory firm expects private equity activity to remain robust, driven by demand for capital from local businesses seeking expansion, while mergers and acquisitions are likely to remain muted.
Kenya’s General Election slated for August is a concern, the firm said, could drive some capital to neighbouring counties, or force investors to look for deals earlier in the year before the polls.
