East Africa's PE deals double to $834m, spread across multiple sectors

Stacks of one hundred dollar notes at the bank's headquarters in Seoul. East Africa's private equity deal doubled to $834 million in 2018. PHOTO | AFP 

In Summary

• Private equity activity in the East Africa almost doubled to $834.3 million, compared with $446.78 million last year.
• The increased deal activity is indicative of region’s growing prominence as a private capital destination.
• Kenya still led the region, recording 24 transactions, compared with 18 in 2017.

By ALLAN OLINGO
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Private equity activity in the region bounced back in 2018 after a tough 2017, with the disclosed value for deals recorded almost doubling to $834.3 million, compared with $446.78 million last year.

The increased deal activity is indicative of East Africa’s growing prominence as a private capital destination, in part driven by the stability of the region’s economies.

There were 47 PE deals announced this year, up from 27 in the previous year.

Kenya still led the region, recording 24 transactions, compared with 18 in 2017.

Eva Warigia, the executive director at the East Africa Venture Capital Association (EAVCA) — the organisation for private equity and venture capital firms operating in East Africa — said that a relatively calm transition following the 2017 elections and the handshake by the leading parties’ political heads sent a strong signal on Kenya’s stability, and reinforced investor confidence, resulting in the jump in deals made in 2018.

“Most investments had been in the pipeline during the election cycle waiting for the political tension to ease before conclusion,” said Ms Warigia.

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Uganda came in at a distant second with a total of six deals recorded this year, while Ethiopia, whose profile has been steadily rising among the investing community, recorded five transactions.

Rwanda had two while Tanzania had one transaction, data from EAVCA shows.

Deals closed

Private equity investment activity was spread across multiple sectors from education, with an investment by Fanisi Capital in Kitengela Group of Schools, to healthcare in Tanzania, with Leapfrog Investments’ acquisition of a stake in Pyramid Group.

The year also saw a $47.5 million investment in technology firm Cellulant, reinforcing East Africa’s position as a tech hub.

Ethiopia’s jump from no deals in 2017 to five closed this year, was largely attributed to the growing network of country focused funds.

Cepheus Growth Capital Partners, a fund dedicated exclusively to investing in Ethiopia, closed its maiden fund at $100 million. Zoscales Partners, another Ethiopia-focused fund with $75 million in assets under management, closed two deals in the manufacturing and consumer sectors.

In August, Nairobi-based private equity firm Catalyst Principal Partners acquired Kenyan top tier mattress manufacturer Superfoam.

The firm also bought Uganda mattresses maker Euroflex Ltd and Malawian mattress manufacturer Vitafoam for an undisclosed amount.

The deal will see the establishment of Catalyst Mattress Africa from merging the three firms through a new vehicle called Mammoth Foam Africa, where the PE fund has a stake.

Early this month, the fund announced the closure of its second round of fundraising, which netted $155 million in capital commitments from international and regional investors.

“Private equity firms like Catalyst will be instrumental in enabling small businesses tap into this market,” said Kenya’s East African Community Cabinet Secretary Adam Mohammed.

Catalyst said that mid-sized firms in Tanzania, Ethiopia and Uganda will get about a quarter of the raised funds ($38.3 million), while a maximum of 20 per cent will target investment opportunities in new markets in Rwanda, the Democratic Republic of Congo and Zambia.

Ascent Capital Africa

Another PE fund, Ascent Capital Africa, said last week that it plans to raise $120 million for its second fund to be invested in mid-sized companies across East Africa.

It plans to channel the funds into new investments in fast-moving consumer goods, healthcare, manufacturing and financial-services companies in Tanzania and Rwanda. It already has investments in Kenya, Uganda and Ethiopia.

As the region’s attractiveness grows, more PE firms are looking at investable businesses.

This year, Mauritius based Adenia Partners, France’s Amethis Partners, South Africa’s Ethos Partners and Washington DC’s Capria Ventures were among the PE funds that opened offices in the region.

Private equity in East Africa provides growth capital for the rapidly expanding SME economy, investing in businesses with an annual turnover of less than $30 million and employing fewer than 150 employees.

“Going into 2019, we expect the momentum of deal activity to increase, at least for Kenya and Ethiopia. We are optimistic that East Africa will remain a significant market for investors looking at Africa, backed by its economies’ resilience.

“Along with this are the diverse sectors available for investment, providing a wide spread for value generation to the investors’ portfolio,” Ms Warigia said.

In August, Chartered Financial Analysts Society East Africa said that foreign investors were channelling their funds towards agri-business, healthcare and tech companies.

“We are seeing investors keen to fund technology hubs in the region, and that is positive for small businesses using technology to offer solution in health, agriculture and education. This is the direction investments are taking,” Alan Norman Lwetabe, a board member said.