Kenya leads East Africa peers in private equity inflows

NAIROBI: Kenya continued its dominance in the region’s private equity industry with the country accounting for more than 60 per cent of private equity deals recorded in the East African region.

For the seventh year running, Kenya outpaced Tanzania, Ethiopia, Rwanda and Uganda to become the foremost preferred destination for investors, cementing the country’s position as a leading destination for foreign direct investment on the continent.

The latest edition of the East African Private Equity Survey by consulting firms KPMG and the East Africa Venture Capital Association (EAVCA), indicates that Kenya received investment deals worth Sh49.7 billion out of the Sh78.9 billion ($822 million) reported.

The survey, which covered the years 2007 to 2014 stated that 328 private equity (PE) deals were announced during the period under review, with Kenya receiving 63 per cent of the reported deals, followed by Tanzania and Ethiopia, which recorded 12 and six deals respectively.

“Of the total global PE funds raised globally, $3.7 trillion for the 2007-2014 period, which is approximately 0.6 per cent, is earmarked for Africa and 0.04 per cent for East Africa,” explained Ms Sheel Gill, a director at KPMG’s Deal Advisory business unit.

Gill, who was speaking at the launch of the survey in Nairobi yesterday, stated that the companies sampled confirmed that they had raised Sh172.8 billion ($1.8 billion), but only managed to commit Sh49.7 billion. “The companies still have a lot of private equity to invest in the coming period,” she added. Most of the investment deals were committed in five economic sectors, with agriculture receiving more investors.

Agriculture received 27 per cent of the deals, financial services 14 per cent, fast moving consumer goods 11 per cent, ICT 10 per cent and healthcare nine per cent, accounting 71 per cent of the total 79 reported deals.

HIGH-NET-WORTH

The deals reported in agriculture were committed in the secondary sector such as diary processing, horticulture, as opposed to the primary sector. Of the total reported 79 deals, 70 are within a ticket range of Sh960 million ($10 million) or less and 61 were for  minority equity stakes of 40 per cent and below.

Private equity funds mostly with maturity of five years were sought. Also preferred are investor contributions from Europe and North America and high-net-worth individuals/families. Most private equity funds are structured as limited partnerships and are governed by the terms set forth in the limited partnership agreement or LPA. Such funds have a general partner (GP), which raises capital from cash-rich institutional investors, such as pension plans, universities, insurance companies, foundations, endowments, and high-net-worth individuals, which invest as limited partners (LPs) in the fund.

“The majority of these funds are injected into target businesses either through limited partnerships or direct investment arms of the GPs and LPs for growth and expansion through equity deals,” stated  Gill.

During the seven year period, 21 exits valued at Sh24.9 billion ($260 million) were reported. Companies exited the market through share buyback, which accounted for 52 per cent of total exits.

The report noted that only three exits had a multiple of more than three. However, the number of exits have been increasing since 2011 with seven reported in 2014. Gill observed that investment in the financial sector seem to be the most marketable for the private equity, with 43 per cent of total exits being in this sector.

“Exits in 2012 represent investments made in 2007, implying a holding period of more than 5 years. Globally PE funds raised reached $3.7 trillion during the review period, with $22 billion committed to Africa’s market,” she said.