Economic meltdown, coupled with forex scarcity, have resulted in about 44 private equity companies exiting their investments in Nigeria, South Africa, Kenya and Egypt markets last year. Ernst & Young (EY) and the African Private Equity and Venture Capital Association (AVCA) disclosed this in their latest reports on African investments.
The report, which was monitored on Ernst & Young’s website, said that many private equity companies cashed out their investments in Africa last year than any other time as currencies across the continent fell against a globally stronger dollar.
The report, titled: “How private equity investors create value” on the stable of Ernst & Young (EY) and the African Private Equity and Venture Capital Association (AVCA), showed that investors exited 44 companies in 2015, more than the 39 exits recorded in the previous two years, which was a nine-year high. According to the report, South Africa accounted for 39 per cent of the exits, 11 per cent from Egypt, while Nigeria and Kenya accounted for 10 per cent each.
Other African nations accounted for the remaining 30 per cent. “The last two years have seen an increase in the number of private equity firms making exits in the African markets,” Graham Stokoe, Africa Private Equity Leader at Ernst & Young, said in a statement.
“The biggest current challenges noted by private equity firms included an increasingly tough macro-economic environment, particularly currency fluctuations, valuations trending upwards and an intermediary landscape that is underdeveloped in a number of countries,” Ernst & Young said in the statement.
Most African currencies tumbled last year as commodities price rout on the international markets hurt their exports and the US Federal Reserve Bank hiked interest rates for the first time in nine-years.
Economists warned that emerging and frontier regions like Africa would face huge capital outflows as money that had left the United States during the financial crisis reversed the flow.
Private Equity firms shrug financial turmoil in many African countries in 2015 to raise a record $4.3 billion from the $2.6 billion accumulated in 2014.
Among those to close in 2015 was the Abraaj Group’s North Africa Fund II, which raised $375 million by August, $125 million above its target – its Africa Fund III had previously reached a final close at $990 million in March, having targeted $800 million. These were both topped by Helios Investors III, which reached a hard-cap of $1.1 billion, having targeted $900 million.
According to AVCA’s recent study, about 249 private equity exits took place in Africa between 2007 and 2014. While 2016 is not expected to be better than last year, five Africa-focused private equity funds have already closed this year, raising a total of $575 million, including the $295 million Investec Asset Management Africa Frontier Private Equity Fund 2, according to Preqin Ltd.
According to a Bloomberg report, private equity fundraising in Africa is expected to drop to about $2 billion this year because of economic headwinds, the potential downgrade of South African debt in June, and because some of the largest firms closed their funds last year