The number of corporate deals in East Africa rose by 40 percent in the first eight months of the year compared to the corresponding period in 2021, driven by venture capital investments in ICT and financial services sectors.
In recent years, the deals landscape has been dominated by private equity investments into larger established businesses, mergers and acquisitions. The strong showing by venture capital funds this year, however, indicates that investors are seeking new opportunities in startups which have high potential for growth.
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.
It is also a pointer to a return of optimism by external investors in the continued post-Covid recovery of the economy, especially in Kenya where the elections season came and passed without disruptions.
Deals analysis done by advisory firm I&M Burbidge Capital shows that in the eight months to August, the region recorded 91 deals, out of which 39 were venture capital investments, which eclipsed the 31 private equity and Development Finance Institution (DFI) investments and 15 merger and acquisition deals in the period.
In terms of sectors, ICT and telecommunications have dominated with a total of 33 deals this year, followed by financial services at 18. Logistics, healthcare and energy have six deals each, while there are five apiece for manufacturing and agribusiness.
Kenya, leveraging on Nairobi’s status as the regional financial hub, has accounted for three-quarters of the total deals this year at 68, ahead of Uganda’s 15 deals, Tanzania’s five and Rwanda’s three.
“These transactions underline the continued emergence of the IT sector, backed by the wave of venture capital investments, in East Africa,” said I&M Burbidge Capital in their East Africa financial review report for August.
“We are optimistic of continued robust transactions and an improved economic environment, following the completion of the General Elections in Kenya.”
Last year, the deal-making was suppressed by the Covid-19 pandemic, which caused economic uncertainty and caution in capital deployment.
Travel restrictions were also a factor, with many businesses pausing meetings and waiting to see how regional economies would recover before making investments.
According to I&M Burbidge Capital, since the pandemic has receded, dealmakers are shifting their attention to policies that affect business, while concern remains over the weakening of regional currencies against the dollar, which negatively affects returns upon exiting investments.