Advisory firm I&M Burbidge Capital said in an outlook report that increasing liquidity from PE firms, largely from development capital funds, will drive the segment that saw the number of deals rise to 73 last year from 69 in 2019.
Businesses have also turned to PE funding due to difficulties in getting credit from risk averse banks, and also with a view to avoid the extra scrutiny that comes from raising money through the capital markets.
Private equity investments are expected to dominate corporate deals in East Africa this year as businesses seek new capital to aid post-Covid recovery, outperforming mergers and acquisitions.
Advisory firm I&M Burbidge Capital said in an outlook report that increasing liquidity from PE firms, largely from development capital funds, will drive the segment that saw the number of deals rise to 73 last year from 69 in 2019.
Businesses have also turned to PE funding due to difficulties in getting credit from risk averse banks, and also with a view to avoid the extra scrutiny that comes from raising money through the capital markets.
“We expect that PE activity will remain robust in 2021 driven by a demand for capital from local businesses starved by the pandemic, which matches well with the increased stock of developmental capital available for investment,” said the firm in its annual financial review for 2020.
“In the short-term we expect that mergers and acquisitions will be muted as businesses recover from the effects of the covid-19 pandemic. This may well continue in to the medium-term, particularly for foreign trade player driven transactions, if the structural challenges to doing business are not addressed.”
Last year, there were 25 mergers and acquisitions, down from 30 in 2019 and 56 in 2018.
I&M Burbidge also blamed political and policy challenges for the reduction in mergers and acquisitions in the region in recent years.
In Kenya, which accounts for the lion’s share of regional deals, the recently removed rate cap on loans, political restlessness and collapse of three banks and major retail businesses over the past five years has shaken investor confidence.
The firm also cited political challenges that plague businesses in Tanzania and Ethiopia’s strict foreign exchange controls as discouraging investment.
“As a majority of merger and acquisition activity in the region is driven by foreign trade players, these challenges, have made the region less appealing as a target for inorganic expansion,” said the firm in the report.
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