Value of East Africa deal book dips 35pc on investor jitters

In terms of the number of deals, venture capital (VC) led at 25, followed by mergers and acquisitions at 12, private equity (PE) at 10, and DFI at nine.

Photo credit: Shutterstock

The disclosed value of deals in East Africa fell by more than a third in the first five months of the year compared to the corresponding period in 2023 on investor caution due to macroeconomic headwinds, including currency volatility and high inflation.

Analysis of the regional deals landscape by investment advisory firm I&M Burbidge Capital shows that the disclosed value of deals this year stands at $952 million (Sh123 billion), compared to $1.47 billion (Sh189.6 billion) in the first five months of 2023--marking a 35.12 percent drop.

In Kenya, where the majority of regional deals are domiciled, the first quarter of the year saw the shilling weaken to historic lows, partly on account of uncertainty over whether the country would be able to repay a maturing $2 billion sovereign bond.

Inflation was also elevated coming into the new year, but like the shilling exchange rate, it has since then moderated after the Central Bank of Kenya raised its base lending rate.

Exchange rate volatility, however, remains a concern in Uganda and Tanzania, and the high interest rates in Kenya are also hurting capital access for the private sector in Kenya.

“The regional macroeconomic picture remains mixed, with negative cyclical headwinds from high interest rates, concerns over debt distress, unfavourable fiscal policy, and currency volatility in Tanzania and Uganda pitted against positive cyclical and structural tailwinds including a favourable inflation trend, currency stability in Kenya,” said I&M Burbidge Capital in its May 2024 East Africa financial review.

“This backdrop leads us to the conclusion that whilst we maintain our expectation for continued investor interest in the region, we expect higher diligence and return requirements and as a result longer transaction completion timelines”

I&M Burbidge Capital tracks deals every month in Kenya, Uganda, Tanzania, Rwanda, and Ethiopia, segregating them according to sectors and the type of institutions involved.

In the review period, investments by Development Financial Institutions (DFIs) accounted for the highest value of deals at $647 million (Sh83.6 billion), followed by mergers and acquisitions ($168.3 million/Sh21.7 billion), venture capital deals ($73.6 million/Sh9.5 billion) and private equity ($63.2 million/Sh8.1 billion).

In terms of the number of deals, venture capital (VC) led at 25, followed by mergers and acquisitions at 12, private equity (PE) at 10, and DFI at nine.

The low disclosed value relative to the number of deals by VC and PE indicates that many of the transaction values were kept private. It also shows that they have lower ticket prices per deal compared to DFI and merger/acquisition transactions.

Regarding geographical distribution of deals, Kenya accounted for 40 out of the region’s total of 59 deals, followed by Uganda at seven deals, Rwanda and Tanzania at five deals each, and Ethiopia at two transactions.

Nairobi’s status as the regional financial and air transport helps attract deals to the country, including for those firms looking to establish a regional presence.

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.