East Africa has received $1.6 billion from foreign investors, Kenya taking the bulk of the 55 deals recorded in the past eight months.
Data from I&M Burbidge Capital shows that the initial public offering of Vodacom Tanzania, and the purchase of Sadolin Paints by Japanese firm the Kansai Paint were some of the region’s biggest deals.
The Vodacom IPO raised $213 million, with foreign investors buying 40 per cent.
Tanzania emerged as the second largest market for private equity deals, with most of the capital going into communication, infrastructure and resources sectors. It is followed by Uganda and Rwanda.
Executive director of the East Africa Private Equity & Venture Capital Association (EAVCA) Eva Wairigia attributed the rise in private equity activity in the region over the past two years to both macro factors and industry development.
“East Africa has traditionally been a market for small and medium-sized companies growth capital, where private equity firms deploy between $1 million and $30 million per deal,” said Ms Wairigia.
“This means that while the rest of the continent catches up in SME investment, players in this region have already made significant inroads in that segment, thus making it easier to conduct business here.”
Mid this year, Fanisi Capital announced that it had received commitments worth $29 million in the first phase of its round two capital raising to fund SMEs.
The fundraising had seen strong interest from local investors — accounting for 45 per cent — with the rest coming from international investors.
Positive GDP Growth
From a macro perspective, East Africa has also recorded positive GDP growth performance for Kenya, Tanzania, Ethiopia, Uganda and Rwanda, compared with the greater Africa, where commodity prices and recession affected countries in Southern and West Africa.
Currency fluctuations, which rocked markets such as Nigeria, Angola and Zambia, were comparably subdued in East Africa.
According to the EAVCA/KPMG Private Equity Sector Survey Report released in June this year, Kenya attracted the bulk of private equity interest in East Africa both in terms of volumes of deals and value.
Kenya saw PE funds carry out 23 deals last year, accounting for two-thirds of total in the region.
The report shows that PE firms raised $1.1 billion for regional investments in 2016, a 41 per cent increase on the amount raised in the preceding seven years.
The main source of investment funds, according to the survey was European development finance institutions, high net worth individuals or families and sovereign wealth funds.
“The sector survey shows that the 16 Africa focused funds have already released $600 million from these funds, with Kenya getting the lion’s share at $483.5 million,” said KPMG East Africa head of deal advisory Sheel Gill.
“There is increased focus by PE funds on East Africa because of the downturn in commodities and currency devaluation in southern Africa.”
The I&M Burbidge capital reports shows that financial services has taken 29 per cent of this year’s deals followed by energy, oil and gas at 17 per cent. Other notable sectors are real estate at 10 per cent, ICT at eight per cent and hospitality at six per cent.
In the financial sector, Kenya’s Housing Finance last month raised $30 million from international investors, with the company planning to use part of the debt to help repay its $70 million corporate bond which matures on October 2.
Sanlam Kenya also acquired an additional 12 per cent stake in Gateway Insurance in July, raising its investment to $9.14 million.
In the mining sector in Uganda, vermiculite miner Black Mountain Resources in June raised $1 million, with the funds deployed to delivering operational improvements at its Namekara mine.
In Tanzania, gold miner Shanta Gold agreed to buy listed explorer Helio Resources for $4.6 million. The acquisition will give Shanta control of Helios’ assets in the country.
In the manufacturing sector, listed Japanese paint and coating manufacturer Kansai Paints in June acquired a 90 per cent stake in Sadolin Group for $100 million. The acquisition included Rwanda, Tanzania, Uganda and Kenya operations.
Rwanda saw the I&M transaction as one of its biggest deals this year, after Africa-focused private equity fund manager, Kibo Capital Partners announced that it had acquired a stake whose size remains undisclosed, in the bank.