2021 Deloitte Africa Private Equity Confidence Survey - June 2021
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2021 Deloitte Africa Private Equity Confidence Survey June 2021
Contents
Foreword 02
Key highlights 04
Economic climate 06
Deloitte insights: Market approach valuation post-COVID-19 11
Investment landscape 12
Deloitte insights: Providing growth solutions to private enterprises 19
Fundraising environment 20
Deloitte insights: Data analytics in PE deals 24
Sector focus 26
Deloitte insights: Early intervention can help reduce strain on
underperforming portfolio companies 31
Acronyms 32
Methodology 33
Acknowledgements 33
Endnotes 34
Contacts 35
01
2021 Deloitte Africa Private Equity Confidence Survey
Foreword
We are pleased to present the 2021 Deloitte
Africa Private Equity Confidence Survey
(PECS). This publication is centred around
valuable insights into how fellow private
equity (PE) practitioners view the African
PE landscape, specifically their future
expectations over the next 12 months.
To supplement the forward-looking Gladys Makumi Clinton Wolder
perspectives, the publication also Partner Partner
incorporates publicly available Financial Advisory Financial Advisory
macroeconomic data and commentary on Deloitte East Africa Deloitte Africa
the current PE landscape and foreign direct
investment (FDI) trends.
Prior editions of the PECS have focussed
on East, Southern and West Africa. For the
2021 publication, we are excited to have
extended the survey to also include North
Africa.
Despite a challenging 2020 and the
Damien Jacquart Temitope Odukoya
prevailing uncertainties around the
Partner Partner
timeframe of the pandemic, investment
Financial Advisory Financial Advisory
and economic conditions are expected
Deloitte Francophone Africa Deloitte West Africa
to improve as countries implement a
range of measures to recover from the
impact of COVID-19. While there will be
various headwinds and challenges to
navigate, including effective vaccine roll-out
strategies, growth prospects are positive.
As a proven agile asset class, the PE
industry is expected to play a key role
in the economic recovery and projected
increase in investment activity over the
next 12 months. Although investment
strategy and related returns will be key,
we also foresee an increased social
responsibility to drive PE activity. This aligns
with the survey expectation that funding
will largely be obtained from development
finance institutions (DFIs).
We would like to thank all those who
completed the survey and thereby
contributed to us being able to deliver the
message of investor confidence over the
next 12 months.
02
03
2021 Deloitte Africa Private Equity Confidence Survey
Key highlights
Economic climate
Africa’s Gross Domestic Product (GDP) growth is forecast to
rebound in 2021 and 2022 after the adverse impact of COVID-19
in 2020. This is supported by a projected improvement in exports,
commodity prices, and private consumption.
In line with an anticipated rebound in growth across the
continent, respondents expect the overall economic climate in
the four regions covered in this report – East, North, Southern
and West Africa – to improve over the next 12 months.
Ghana, Kenya, Morocco, and South Africa are the expected key
target investment countries in their respective regions.
Investment landscape
An average lifecycle of five to seven years from initial
PE activity is expected to increase across all regions, driven investment to exit is expected across three of the four
largely by the anticipated rebound in economic activity. regions, except for Southern Africa. In Southern Africa, most
respondents expect this to be more than seven years.
The number of exits is expected to remain the same over
Most respondents expect an increase in PE investments
the next 12 months across the four regions. This is largely
over the next 12 months across East, North, Southern,
expected as current adverse economic conditions and
and West Africa based on the expected recovery from the
COVID-19-related economic and commercial uncertainties
adverse economic impact of COVID-19.
impact transaction activity, valuations and the timing of exits.
Respondents expect average deal sizes to largely remain
Sales to strategic investors and secondary sales to PE are
below US$50m, in line with the growing level of mid-fund-
expected to be the favoured exit routes for all regions.
sized deal activity across the continent.
04
2021 Deloitte Africa Private Equity Confidence Survey
Fundraising environment
The fundraising environment is largely
DFIs are expected to be the most preferred
expected to improve or remain the
third-party source of funding over the next
same across all four regions, based on
12 months. DFIs have played and continue
the expected improvement in economic
to play a key role in the PE industry.
forecasts and increase in transaction activity.
The United States (US) and Europe are
Fundraising timelines are expected to
expected to be the largest sources of funding
increase across all four regions, driven by
for most of the African regions. In Southern
an anticipated tightening of fundraising
Africa, South Africa is projected to be the
processes and related requirements.
largest source of funding for the region.
Key sectors of interest before the COVID-19
pandemic included Education and Green Energy.
Sector focus
The COVID-19 pandemic has highlighted the importance
of and likely greater focus on certain key sectors such
as Healthcare and Pharmaceuticals, Education, and
Technology, Media and Telecommunications (TMT).
05
2021 Deloitte Africa Private Equity Confidence Survey
Economic climate
The COVID-19 pandemic has widely tested As economic activities have resumed in increased domestic demand. East Africa’s
the resilience of African economies and has most parts of the continent, SSA growth economic growth is forecast to rebound to
severely impacted some of the continent’s is forecast to rebound to 3.4% and 4% in 4.5% in 2021.
fastest-growing economies. 2021 and 2022 respectively, supported
by expected improved performance in Having decreased from 9% in 2019 to
Having battled with sluggish growth exports, commodity prices, and private 6.1% in 2020, the slowing yet still positive
since 2016, Africa’s aggregated growth consumption.2 growth rates seen in Ethiopia in 2020 (and
performance was not left unscathed by expected in 2021, at 2%), result from a
the COVID-19 pandemic. The pandemic Regional economic outlooks series of economic shocks, which include
has seen African governments prioritise East Africa’s economic growth has been the spread of COVID-19, the disruption of
emergency responses to the global health largely driven by strong public spending on the global air transport sector, a worsening
crisis, including lockdown measures, which infrastructure, and incentives for industrial food security situation, and escalating
have detracted from the pursuit of robust, development. The economic disruption violence in the Tigray region. In addition,
inclusive, and sustainable growth strategies resulting from the COVID-19 pandemic security risks surrounding general elections
across all regions. has seen the region’s expected growth scheduled for June 2021 are expected to
for 2020 drop to 1.8%, down from 7.2% further weigh on consumer and business
GDP growth in Sub-Saharan Africa (SSA) in 2019, making it the only African region activity. The country is projected to see a
was recorded at 3.2% in 2019. GDP growth to record positive growth in 2020. This distinct growth recovery in 2022 to 8.7%.
in SSA then contracted by -1.9% in 2020, was supported by Ethiopia’s economic
owing to sizable direct and indirect impacts performance,3 public infrastructure
on economic activity through both demand spending, industrial development, and
and supply shocks.1
Figure 1. Weighted regional real GDP growth (%), 2019-23f
8.0% 7.2 7.3
6.0%
4.8 5.3
4.5 4.0 4.0 4.1
4.0% 3.7 3.7
3.5 3.5 3.4
2.5 2.5 2.4 3.2
2.0% 1.8
1.5 1.3
0.2
0.0%
-0.7
-2.0%
-1.8 -1.9
-4.0%
-6.0%
-6.0
-8.0%
East Africa North Africa Southern Africa West Africa SSA
2019 2020 2021f 2022f 2023f
Source: Deloitte Africa analysis based on International Monetary Fund, World Economic Outlook, April 2021
06
2021 Deloitte Africa Private Equity Confidence Survey
Most East African economies experienced i.e. a halt in economic activity largely in country was the least affected by COVID-19
economic contractions in 2020, impacted Q2 of 2020. The country’s growth rate in the region in 2020. However, growth is
by reduced trade flows and temporary is projected to rebound to 3.1% in 2021, expected to slow further in 2021 to 2.5%
closures of businesses. Rwanda’s economy supported by an expected recovery in and then recover to 5.7% in 2022.15
contracted by -0.2% in 2020 from 9.4% household consumption and exports.9
in 2019 and is expected to rebound to Morocco entered a recession in 2020,
5.7% in 2021. The latter is driven by an In West Africa, GDP growth dropped from owing to a drop in domestic demand,
expected recovery in the services sector 3.5% in 2019 to -0.7%10 in 2020, largely disruptions in value chains, decline in
and a generally revamped private sector. from the economic slowdown in Nigeria, private consumption, as well as a drought
In Kenya, the National Treasury estimated a decline in commodity prices, reduced which contracted agricultural value added
the country’s growth rate to reach 0.6% financial flows, and a slower recovery from by 7.1%.16 Economic growth in Morocco saw
in 2020, down from 5.4% in 2019.4 With the 2015/16 recession.11 In 2020, West a sharp decline from 2.5% in 2019 to -7.0%
the country having faced a third wave Africa was the second-best performing in 2020, but is expected to recover to 4.5%
of infections in March 2021,5 growth region after East Africa, recording the in 2021.17
recovery continues to be uncertain. A key smallest growth contraction in Africa in
risk to Kenya’s economic performance 2020. Growth in the region is expected to While these forecasts currently reflect
in 2022 is the scheduled elections in the rebound to 3.5% in 2021. an expected economic rebound and
same year, which may potentially impact subsequent recovery in GDP growth across
economic activity. Other risks include the In the region’s biggest economy, Nigeria, regions, this outlook is subject to various
slow vaccine roll-out and another possible economic growth declined from 2.2% in risks (both domestic and external).
wave of infections in Q3 of 2021. Growth 2019 to -1.8% in 2020. Nigeria is expected
is forecast to rebound to 6.6% in 20216 as to see a slow recovery to its pre-pandemic Projections are highly dependent on
activity is expected to resume following the levels in 2021 (2.5%) and 2022 (2.3%).12 the containment of the virus, vaccine
COVID-19 lockdowns, boosting tax revenue Ghana suffered from a reduction in export distribution, continued progress in
and government spending. revenues from oil and cocoa, and from structural transformation, leveraging
the effects of the COVID-19 pandemic initiatives such as the Africa Continental
Southern Africa experienced the largest measures, such as disruptions to global Free Trade Area (AfCFTA) agreement,
contraction among its peer regions in 2020. commodity-based supply chains, and commodity price developments,
GDP growth contracted by -6% in 2020, decreased commodity exports. However, economies’ debt trajectories on account
impacted by poor economic performance growth rates in Ghana remained positive of mounting fiscal deficits, as well as the
in the region’s largest economies, South after dropping from 6.5% in 2019 to 0.9% in policy measures adopted by countries in
Africa and Angola, as well as other factors, 2020. Growth, although marginal, stemmed the region.18
which included supply-side constraints, from the positive contribution of net gold
weak commodity prices, eroded export exports, combined with favourable gold
growth, and constrained fiscal space.7 and cocoa prices, as well as a recovery
Southern Africa’s growth rate is projected in the Construction and Manufacturing
to rebound in 2021 to 2.5%. sectors.13 The country is expected to see
growth of 4.6% in 2021 and a further
South Africa has been grappling with low increase to 6.1% in 2022.14
growth, increased public debt, and high
unemployment rates for many years.8 Real North Africa’s GDP growth declined from
GDP growth in South Africa declined from 3.7% in 2019 to -1.8% in 2020. The region is
0.2% in 2019 to -6.9% in 2020, supressed projected to have a strong rebound in 2021
by the above-mentioned factors which to 7.3%, with growth reducing to 1.5% in
were further impacted by the country’s 2022. Real GDP growth in Egypt dropped
response measures to contain the virus, from 5.6% in 2019 to 3.6% in 2020. The
07
2021 Deloitte Africa Private Equity Confidence Survey
Respondents’ views on the economic Figure 2. Expected change in the economic climate by region over the next 12 months
outlook and focus of funds
In early 2021, Deloitte Africa surveyed
general partners (GPs) and limited partners
70%
(LPs) to understand their views of the 65%
impact of COVID-19 on the economic
57% 59%
climate, the country focus of funds, 60% 56%
the investment landscape, fundraising
environment, and sector focus in East, 50%
North, Southern and West Africa over the
next 12 months.19
40%
A summary of the results is discussed in 31% 32%
the sections that follow below. 30%
26% 25%
Overall perspective 19%
20%
Following the onset of the COVID-19
pandemic and the resultant slump in 11%
growth across Africa in 2020, respondents 10% 9% 9%
expect the overall economic climate in each
region to improve. 0%
East Africa North Africa Southern Africa West Africa
Regional insights
Economic growth in East Africa is
Improve Remain the same Deteriorate
projected to recover in 2021 and 2022.
The vaccination campaigns, growing
consumption, investment, and trade will be Source: Deloitte Africa analysis based on PECS 2021 results
the key drivers for a projected economic Note: Regional totals may not add to 100% due to rounding.
rebound.
While more than half of respondents The majority of respondents are optimistic The expected improvement in West Africa
expect an improvement in North Africa, regarding the economic outlook for follows the anticipated continued progress
one in four respondents feel that the Southern Africa, although a stuttering in managing the pandemic, as well as the
region’s economic climate is likely to vaccine roll-out programme coupled with expected success of vaccine distribution in
deteriorate over the next 12 months. Only fears of further waves of infections as well countries within the region.
Egypt’s economic growth has been strong as fiscal pressures, exacerbated by COVID-
and resilient, despite the adverse health 19-related costs, and tighter monetary
impact of the pandemic.20 Other countries policies, could impact on expectations. In
in the region contracted significantly in South Africa, electricity supply shortages
2020. Effective vaccine campaigns in the will remain a binding constraint on growth
region are likely to boost consumer and over at least the next two years.
business confidence, consumption, and
investments.
082021 Deloitte Africa Private Equity Confidence Survey
Figure 3. Countries in East Africa that funds aim to focus on over the next 12 months Although East Africa has been a smaller
PE investment destination, only attracting
about 16% of deals by volume, and 8%
30%
27% by value over the 2014-19 period,21 the
region is expected to be a key investment
destination going forward, owing to its
25%
attractive macroeconomic outlook.
22%
The focus of funds in East Africa over the
20% 19%
17% next 12 months is expected to be on Kenya,
Uganda, and Ethiopia. Ethiopia and Kenya
15% have been key investment destinations for
15% FDI in the region over the 2016-20 period.22
Kenya’s attractiveness to international
10% investors stems from its diversified
economy and continued focus on
infrastructure development, its status as
5% the largest economy and commercial hub
of East Africa, as well as supporting policies
such as the Big Four Agenda and Vision
0% 2030.23
Kenya
Uganda
Ethiopia
Rwanda
Tanzania
Ethiopia has become attractive for PE and
other investment owing to the current
regime’s economic reforms, the size of its
Source: Deloitte Africa analysis based on PECS 2021 results population, and relatively high economic
growth forecast. The demand for capital
from the growing private sector, and local
banks’ inability to meet this demand, makes
Figure 4. Countries in North Africa that funds aim to focus on over the next 12 months Ethiopia an ideal destination for PE funds.
However, persistent foreign exchange
35% 34% shortages in the country present a major
32% challenge to private investors.
30%
North Africa has been a key investment
destination for FDI over the 2016-20
25% 24% period, with Egypt (1st), Morocco (4th) and
Algeria (5th) among the top five recipients of
FDI flows in Africa.24 Morocco and Egypt are
20% expected to be the key focus of funds in the
region, having been notable destinations
for deal activity prior to COVID-19.25
15%
11% Despite the adverse impact of COVID-19
10% on Morocco’s economy, respondents still
consider the country to be a key focus
for investment in the region. Egypt has
5%
gradually established itself as a venture
capital hub, attracting multiple early-stage
0% deals, and is likely to remain an attractive
destination for PE investment in the region.
Morocco
Egypt
Tunisia
Algeria
Source: Deloitte Africa analysis based on PECS 2021 results
092021 Deloitte Africa Private Equity Confidence Survey
Southern Africa has been a key Figure 5. Countries in Southern Africa that funds aim to focus on over
investment destination for PE over the the next 12 months
years, based on the number of deals over
the 2014-19 period. By value of deals, the 45%
region has been overtaken by both West 42%
and North Africa.26 Similarly, it has also
40%
been the third-largest destination (20%) for
FDI in Africa, after North Africa (43%) and
West Africa (23%) over the 2016-20 period.27 35%
The focus of funds looking at Southern 30%
Africa is expected to remain concentrated
on South Africa, followed by Mozambique
and Botswana. South Africa and 25%
Mozambique have also been key
destinations for FDI over the 2016-20 20%
period.28
15%
South Africa is the largest and most
diversified economy in the region, and 11%
10%
PE investors are expected to target 10% 8% 8%
quality, well-priced assets that become
available in a post-COVID-19 depressed 5% 5%
5%
market environment. PE has proven to 3% 3% 3%
be an agile asset class in the region, with 1%
PE funds being able to navigate their 0%
South Africa
Mozambique
Botswana
Namibia
Zambia
Angola
Zimbabwe
Madagascar
Malawi
Mauritius
portfolio companies effectively through the
Eswatini
COVID-19 lockdowns and related economic
downturn. This is expected to continue
going forward, with PE expected to be a
key investment driver in the post-COVID-19 Source: Deloitte Africa analysis based on PECS 2021 results
pandemic economic recovery.
In West Africa, key investment countries Figure 6. Countries in West Africa that funds aim to focus on over the next 12 months
are expected to be Ghana, Côte d’Ivoire,
Nigeria, and Senegal. These four countries
25%
represent the strongest economies relative
to other countries in the region, in terms 21%
of economic performance. Furthermore, 20%
20%
these four economies are significantly
17%
more industrialised than other countries in 16%
the region. 15%
West Africa has been a strategic
10% 9%
investment destination for funds in recent
years, having been the top region for
PE investment by value over the 2014- 5%
19 period. Deal activity (by value) has 5%
3%
been largely in Nigeria, despite various 2% 2% 2%
macroeconomic, political, and security risks 1% 1%
0%
in the country, with Ghana in second place.
Ghana
Côte d’Ivoire
Nigeria
Senegal
Benin
Burkina Faso
Togo
Guinea
Mali
Sierra Leone
Cape Verde
Liberia
Nigeria and Ghana both have also been key
recipients of FDI in the region.29
Source: Deloitte Africa analysis based on PECS 2021 results
102021 Deloitte Africa Private Equity Confidence Survey
Deloitte insights: Market approach
valuation post-COVID-19
T
he COVID-19 pandemic has had a annually. It is therefore critical that the It may be wise to underweight the market
major impact on capital markets’ following factors are considered when approach and to rely more on the income
volatility and share prices across attempting to apply the market approach approach with scenario analyses, as this
the globe. Market capitalisations reduced for valuation purposes: method may articulate the uncertainty
significantly in a short period, but the in the earnings potential of the company
subsequent monetary and fiscal policy • Ensure that the earnings base of the and its potential range of value more
changes have helped return markets to company is normalised to exclude adequately.
pre-COVID-19 levels. any once-off or extraordinary items
related to the pandemic. The earnings
In the wake of this volatility, the Deloitte metric should reflect a sustainable level
Africa Valuations team is often asked what of profitability that the company could
the key considerations are with regards to maintain into the future.
applying the valuation market approach,
• The reporting date of the company
given the observed market volatility
should be considered, as the most
that has been wrought by the COVID-19
recent and up-to-date information
pandemic. In performing a valuation based
relating to the comparable company
on the market approach and comparable
should be used in the valuation.
companies, information that is applied
needs to be carefully assessed, as the • Industry multiples observed in 2020
answer is not as straightforward as it would may be understated (in industries
appear. where significant share price declines Damien Jacquart
were observed) or overstated (in Partner,
What needs to be considered is how industries where significant share Financial Advisory,
valuation multiples are calculated, and how price increases were observed), given Deloitte Francophone Africa
the inputs of these valuation multiples have that reported earnings at that point in
potentially been affected by the pandemic. time may not have reflected the future
Valuation multiples express a ratio of impact of the pandemic on the earnings
market value of the company (equity value of the business.
or enterprise value, which is a function of
• The comparability of companies in
the share price times shares outstanding)
different geographies and subsectors
with a reported financial income statement
should be assessed in depth, as the
metric, such as earnings before interest,
pandemic did not uniformly impact all
taxes, depreciation, and amortisation
sectors of all countries across the world.
(EBITDA) or profit after tax (PAT).
• Forward-looking earnings and Mohsin Kahn
On the one hand, equity values are a multiples may be volatile, given the Partner,
forward-looking view of the business, rapidly evolving situation. Economic Valuations & Modelling Leader,
often informed by investor and industry activity may be impacted by unexpected Financial Advisory,
sentiment. On the other hand, a company’s lockdowns due to possible virus Deloitte South Africa
reported financial information is a historical mutations and the outcome of vaccine
figure that is reported quarterly or semi- roll-outs.
112021 Deloitte Africa Private Equity Confidence Survey
Investment landscape
Figure 7. Expected PE activity by region over the next 12 months
80%
74%
70%
65% 64%
60% 56%
50%
44%
40%
30%
30% 27%
23%
20%
10% 9%
4% 3%
0%
0%
East Africa North Africa Southern Africa West Africa
Source: Deloitte Africa analysis based on PECS 2021 results Increase Remain the same Decrease
Note: Regional totals may not add to 100% due to rounding.
Overall perspective of COVID-19. Strong market activity is In Southern Africa, the “wait-and-see”
In line with the anticipated improvement projected as transactions that were initiated approach adopted by many PE firms during
in the economic climate, PE activity is before the pandemic are completed and the onset of the pandemic is expected to
expected to increase across all regions. Key those that began during the pandemic begin result in heightened PE activity in 2021
drivers supporting the investment case in to pick up as economies reopen. and 2022. This is highlighted by 74% of
the continent include a young population respondents expecting PE activity to
driving productivity, rapid urbanisation, Distressed PE acquisitions and possible increase in the region.
and accelerated technology uptake. funding opportunities are likely to increase,
with companies expected to fundraise to Funders and investment committees are
Furthermore, trading has commenced meet their working capital needs post- requiring increased due diligence and
under the AfCFTA from 1 January 2021, pandemic. strong deal rationale to justify investments
which is likely to also positively impact in the current economic climate. However,
PE activity across the continent, as it is In North Africa, respondents are split investment strategies and targeted returns
expected to encourage greater capital between an expected increase in activity will require capital deployment. Therefore,
flows by reducing trade barriers. (56%) and activity remaining the same increased competition in the market is
(44%). Deal activity is anticipated to target expected as investors target quality assets
Regional insights quality assets with strong cash flows; at the right price.
Most respondents in East Africa (65%) however, uncertainty around another wave
expect PE activity in the region to increase of infections and consumer spending may In West Africa investors have been
over the next 12 months. This is in line result in PE firms adopting a “wait-and-see” focusing on strategies to preserve existing
with the anticipated improvement in the approach for new investments and deal investments in the current adverse
economic climate, as governments ease activity. COVID-19 environment. The expected
measures instituted to curb the spread increase in PE activity is anticipated to be
driven by the projected economic recovery
12 in 2021 and 2022.2021 Deloitte Africa Private Equity Confidence Survey
Figure 8. Anticipated investments by region over the next 12 months
70% 69%
64%
61%
60%
50%
50%
40% 38%
30% 27%
26% 26%
20%
13% 13%
10% 9%
6%
0%
East Africa North Africa Southern Africa West Africa
Source: Deloitte Africa analysis based on PECS 2021 results Increase Invest the same Decrease
Note: Regional totals may not add to 100% due to rounding.
Overall perspective the expected improvement in economic surprising that 69% of respondents expect
Prior to the pandemic, between 2014 and climate and anticipated increase in PE an increase in investment activity for the
2019, PE investment activity (number of activity, as vaccination programmes take region.
deals) was on an upward trend, yet the total shape and economies begin to recover.
annual deal value was declining.30 A similar The anticipated increase in respondents’
trend was seen with other investment In North Africa, investors are expected to investments in West Africa is consistent
classes, where the number of FDI projects invest the same over the next 12 months. with economic growth expectations for the
invested in Africa annually rose, although In order to maintain the same level of region, which are expected to create an
total annual FDI in value terms declined investment, countries have implemented avenue for new investments.
between 2016 and 2019.31 This suggests immediate investment policies such as
growing investor interest, but smaller the new Egyptian banking law promoting
average investments. investments and financial stability in
Egypt.32
Looking forward, the results of the Deloitte
PECS suggest that investment activity is In Southern Africa, PE firms have
expected to continue increasing, with lower generally been conservative in deploying
average deal sizes beginning to be favoured capital, both leading up to COVID-19 and
(refer to Figure 9 below). during the initial phase of the pandemic.
An improvement in the economic climate is
Regional insights key to supporting an increase in anticipated
Most respondents in East Africa (61%) investments over the next 12 months.
expect an increase in PE investments Given the expected improvement in
over the next 12 months. This aligns with economic conditions for the region, it is not
132021 Deloitte Africa Private Equity Confidence Survey
Figure 9. The average deal size expected by region over the next 12 months
80%
73% 76%
72%
70%
58%
60%
50%
40%
32%
30% 28% 27%
20% 18%
10%
10% 6%
0% 0%
0%
East Africa North Africa Southern Africa West Africa
Source: Deloitte Africa analysis based on PECS 2021 results2021 Deloitte Africa Private Equity Confidence Survey
Figure 10. Expected entry multiples on transactions by region over the next 12 months
60%
53%
50% 48%
43%
40%
45%
30% 30%
30% 29% 29% 27%
25%
21%
20%
20%
10%
0%
East Africa North Africa Southern Africa West Africa
Source: Deloitte Africa analysis based on PECS 2021 results Increase Remain the same Decrease
Note: Regional totals may not add to 100% due to rounding.
Overall perspective global market and higher discount rates as of respondents (30%) expect multiples
The presence of more PE funds on investors are anticipated to be more risk to decrease as there may potentially be
the ground in African regions and the averse. The attractiveness of companies distressed assets that offer the right
increase in the number of qualified African will also be affected, as most of them are investor an opportunity to acquire a
executives have made it easier to identify reporting decreased earnings, as they business with strong trading potential at
deals and to transact. However, this has recover from the effects of the pandemic. depressed prices.
increased competition and put pressure
on deal values and entry multiples. Based In North Africa, most respondents (53%) Entry multiples in West Africa are
on survey responses, entry multiples on expect entry multiples to remain the same expected to largely remain the same
transactions in North, Southern and West over the next 12 months, as economic over the next 12 months, as economic
Africa are expected to remain the same conditions recover. conditions slowly recover and transaction
over the next 12 months. activity resumes.
Pre-COVID-19, transaction multiples were
Regional insights increasing in Southern Africa as PE
In East Africa, most respondents (43%) investors competed for quality assets in a
expect entry multiples on transactions to growing mid-fund space. Looking forward,
decrease over the next 12 months. Some respondents largely expect entry multiples
of the factors expected to affect asset to remain the same (given the increases
prices include increased volatility in the pre-COVID-19). However, a large portion
152021 Deloitte Africa Private Equity Confidence Survey
Figure 11. Expected average lifecycle from initial investment to exit for investments made during the next 12 months
70%
67%
63%
60%
50% 48% 48%
45%
43%
40% 37%
30%
25%
20%
10% 8%
10% 6%
0%
0%
East Africa North Africa Southern Africa West Africa
Source: Deloitte Africa analysis based on PECS 2021 results More than 7 years 5-7 years Less than 5 years
Note: Regional totals may not add to 100% due to rounding.
Overall perspective lifecycle to be more than seven years. PE
An average lifecycle of five to seven professionals are expected to require
years from initial investment to exit is a longer timeframe to control their
expected across all regions, except for investments and manage exits to achieve
Southern Africa. In Southern Africa, most required valuations.
respondents expect this to be more than
seven years. In Southern Africa, 45% of respondents
expect the average lifecycle to be
Regional insights between five and seven years, with 48% of
Most respondents in East Africa (48%) respondents expecting timeframes of more
expect the holding period to range than seven years. Although the region is
between five and seven years, while likely to see positive economic growth and
43% expect the holding period to be increased investment activity, there are
greater than seven years. The region’s headwinds to navigate, and investors will
average holding period has recently been potentially need to hold onto investments
five years.37 As a result of the change in for longer to achieve required returns.
economic growth forecasts and the impact
of COVID-19, it is expected that portfolio Historically, the typical average investment
companies will take relatively longer to lifecycle of PE investment in West Africa
generate required returns. has been at least five years.38 This is largely
expected to remain the same for the next
In North Africa, 67% of respondents 12 months, with 63% of respondents
expect the average lifecycle to be expecting the average lifecycle to be five to
between five and seven years, with 25% seven years.
of respondents expecting the average
162021 Deloitte Africa Private Equity Confidence Survey
Figure 12. Exits expected by region in the next 12 months
70%
62%
60%
50%
50%
46%
40% 39%
35%
33%
31%
30% 29%
27%
23%
20%
15%
10%
10%
0%
East Africa North Africa Southern Africa West Africa
Source: Deloitte Africa analysis based on PECS 2021 results Increase Remain the same Decrease
Note: Regional totals may not add to 100% due to rounding.
Overall perspective PE exits are expected to be muted over the The economic recovery in West Africa
A total of 278 exits were recorded across next 12 months as businesses recover from is expected to result in the restoration
the continent over the 2014-19 period. The the effects of the COVID-19 pandemic. of investment activities, with exits in the
number of exits increased from 40 exits in region being influenced by typical factors
2014 to 50 exits in 2016, before dropping to The majority of respondents in North such as economic and portfolio company
45 in 2018 and again 45 in 2019.39 Based on Africa (46%) are expecting exits to remain performance.
responses, the number of exits is mostly the same, although 23% of respondents
expected to remain the same over the are expecting more difficulties for exits.
next 12 months across the four regions. An immediate challenge that impacts on
This is largely expected as current adverse exits is the logistical trouble with travel
economic conditions and COVID-19-related restrictions, which complicates the ability
uncertainties impact transaction activity, of potential investors to conduct the
valuations, and the timing of exits. necessary due diligence.
Regional insights In Southern Africa, economic challenges
In East Africa, the poor performance of that existed pre-COVID-19 were further
portfolio companies resulted in the level exacerbated by the impact of COVID-19,
of exits being lower in 2020 than in 2019.40 resulting in a number of transactions
One of the biggest challenges that PE being put on hold, as sellers and buyers
investors have faced in recent months has struggled to find common ground on
been currency depreciation. Given that valuations. Going forward, the level of exits
most funds are raised, invested, and need will depend on the ability of transactions
to return capital to their investors in US to close and investors to find quality assets
dollars, the depreciation of local currencies at the right price, with suitable growth
impacts on portfolio performance. As such, prospects.
172021 Deloitte Africa Private Equity Confidence Survey
Figure 13. Most dominant exit routes per region over the next 12 months
60%
54%
52%
50% 46% 48%
41%
40% 39% 38%
36%
30%
23%
20%
14%
10% 9%
0% 0% 0% 0% 0%
0%
East Africa North Africa Southern Africa West Africa
Secondary sales to private equity Sales to strategic investors Partial exit via refinancing IPOs
Source: Deloitte Africa analysis based on PECS 2021 results
Note: Regional totals may not add to 100% due to rounding.
Overall perspective In North Africa, sales to strategic
Based on survey responses, sales to investors are expected to be the most
strategic investors and secondary sales to favoured exit route. These have historically
PE are expected to be the favoured exit generated high returns in North Africa.
routes for all regions. Initial public offerings
(IPOs) are not expected to be a favoured In Southern Africa, the dominant exit
exit route in any region over the next route is expected to be sales to strategic
12 months. investors, followed by secondary sales to
PE. Strategic investors are expected to be
Regional insights key drivers of projected investment activity
In East Africa, secondary sales to PE are over the next 12 months, as the region
expected to be the dominant exit route tries to recover from the adverse economic
for PE firms, followed by sales to strategic climate and impact of COVID-19.
investors. This is likely as PE firms would
realise better valuations compared to In West Africa, secondary sales to PE
IPOs. Capital markets in East Africa are investors are expected to be the dominant
underdeveloped and have attracted only a exit route, given the number of active PE
few listings in the recent past. market participants and their knowledge of
the market dynamics.
182021 Deloitte Africa Private Equity Confidence Survey
Deloitte insights: Providing growth
solutions to private enterprises
P
rivately owned businesses are platform growth), and portfolio exits
the engine room of the African (by identifying suitable buyers). This is
economy. By diversifying operations done by specialist teams with extensive
or expanding into new markets, privately knowledge of M&A advisory, buy and sell-
held enterprises have been seeking side due diligence, M&A tax, valuations,
options to grow their businesses across and modelling, as well as advising on the
the continent, and will drive the continent’s optimum funding structure that helps
future growth prospects. guide privately held entities, portfolio
companies and the PE funders through
Crucial parts of privately held enterprises’ complex transactions.
Mabel Ndawula
growth strategies include, for example,
Deloitte Private Africa Leader,
business continuity, which is key to any A key challenge, however, is that databases
Partner,
organisation’s success, and succession of privately held enterprises do not exist
Deloitte Uganda
planning. Attracting and retaining effective in most of Africa, and many of these
senior management is vital to taking a companies, often also very profitable and
business forward and developing its fast-growing, fly largely under the radar.
expansion strategy. Although there are many opportunities for
PE, it often takes time and considerable
The effectiveness of management teams is effort to identify suitable targets.
a particular area of focus for PE investors.
Deloitte experience has shown that The economic challenges brought about
having an effective management team in by the COVID-19 pandemic across the
place, along with the growth prospects African continent will not only require
of the company and a well-structured agile investors to navigate volatile and Maik Tiemann
strategy, will ensure its success and make it distressed environments, but also present Associate Director,
attractive to PE investors. several investment opportunities. Given Financial Advisory,
the proven track record of PE investors as Deloitte South Africa
To achieve this, Deloitte Private works closely being adaptable and resilient, the asset
with privately held enterprises, to develop class has a key role to play in the post-
their corporate and business strategy, COVID-19 recovery and rebuild.
advising their management teams, and
helping to drive the business and operating In Africa, the need for a more inclusive and
model that will form part of their overall sustainable development path provides
growth strategy. numerous opportunities for investors to
generate adequate returns, in addition
Deloitte Private also advises on the to making a long-lasting, meaningful
corporate as well as mergers and impact on millions of people through
acquisitions (M&A) strategy of private the rebuilding of economies. Private
enterprises, supports PE investors and enterprises have a key role to play in the
the management teams of portfolio rebuilding process by working more closely
companies with acquisitions and buy- with alternative investment classes, such
side opportunities (by identifying the as PE.
right targets for bolt-on acquisitions and
192021 Deloitte Africa Private Equity Confidence Survey
Fundraising environment
Figure 14. Expected changes in the regional fundraising environment over the next 12 months
60% 56%
50%
50%
45%
41% 41%
40%
36%
30%
25% 26% 24% 23%
20% 19%
14%
10%
0%
East Africa North Africa Southern Africa West Africa
Source: Deloitte Africa analysis based on PECS 2021 results Improve Remain the same Deteriorate
Note: Regional totals may not add to 100% due to rounding.
Overall perspective (41%). Fundraising and fund due diligence In Southern Africa, there was strong
The total funds raised since 2014 processes were prolonged, given fundraising activity pre-COVID-19.
peaked in 2015, largely boosted by COVID-19 travel restrictions. As such, Therefore, respondents are looking to drive
first-time contributions from various US investors shifted their focus towards the projected increase in PE activity mainly
and European institutional investors. stabilising existing portfolios, thereby with funds that have already been raised.
Fundraising then slumped in 2017 on reducing fundraising activity in 2020. As The favourable economic outlook supports
account of dropping commodity prices, as governments develop economic recovery the expected continuation of fundraising
well as exchange rate volatility. Thanks to a initiatives to focus on the removal of activities, albeit that fundraising processes
rebound in oil prices and Africa’s improving structural barriers for private-sector- are anticipated to be prolonged and to
agricultural exports, total funds raised led growth, trade liberalisation, and an have stricter requirements.
recovered in 2019.41 Following the COVID-19 enabling environment for manufacturers
pandemic, the fundraising environment is and exporters, East Africa is expected to Almost half (41%) of the respondents
expected to improve or remain the same see a recovery in fundraising activities. in West Africa expect the fundraising
across all regions. This aligns with the environment to remain the same. This
projected improvement in the respective In North Africa, most respondents expect is largely as funds were not significantly
economic climates and anticipated increase the fundraising environment to either utilised over the past 12 months due to
in PE activity. remain the same or improve over the next reduced rates of investment in 2020.
12 months. This is in line with the expected
Regional insights increase in PE activity and an improvement
In East Africa, respondents expect in economic climate over the next
either an improvement in the fundraising 12 months, demonstrating LPs’ confidence
environment (45%) or no change at all in the long-term attractiveness of PE in
Africa.
202021 Deloitte Africa Private Equity Confidence Survey
Figure 15. Expected fundraising timelines by region over the next 12 months
70%
61%
60% 56% 55%
53%
50%
40%
31% 32%
30%
26% 27%
20%
15% 18%
13% 13%
10%
0%
East Africa North Africa Southern Africa West Africa
Source: Deloitte Africa analysis based on PECS 2021 results Increase No impact Decrease
Note: Regional totals may not add to 100% due to rounding.
Overall perspective In North Africa, fundraising timelines are funding. Furthermore, fund managers are
Fundraising timelines are expected to also expected to increase. The COVID-19 expected to require a more robust risk
increase across all four regions, with crisis has raised several issues, including management framework, which is likely to
the anticipated tightening of fundraising lockdowns, travel restrictions, and liquidity impact the typical timelines for fundraising
processes and related requirements. problems that present obstacles to in the region.
fundraising efforts in the region.
Regional insights
East Africa’s fundraising timelines are In Southern Africa, longer fundraising
expected to increase. The East African timelines may be attributed to current
PE market largely depends on US adverse economic conditions, travel
dollar-based investors. Depreciation of restrictions, delayed vaccine distribution,
currencies in the region due to the impact and increased scrutiny by funders due to
of COVID-19, and the subsequent low US heightened COVID-19-associated risks.
dollar-based returns, have seen revised
investment sentiment towards East With the regional economy still in recovery
Africa. Consequently, some international in West Africa, funders appear to be
institutional investors have exited the more cautious in making funds available
region or have delayed investments. This and are likely to undertake a rigorous
could affect fundraising initiatives over the risk assessment before they can provide
next 12 months.
212021 Deloitte Africa Private Equity Confidence Survey
Figure 16. Preferred third-party sources of funding to be used by Overall perspective
region in the next 12 months DFIs have played and continue to play a
key role in the PE industry. This includes
driving awareness of the importance of
8% private-sector development in Africa, as
10% well as promoting investment facilitation
Insurance frameworks.42
10%
7%
DFIs are the largest third-party source
of funding and are expected to continue
2% playing a leading role going forward, as
0% shared prosperity and inclusive growth are
Corporates
6% more important than ever, following the
5% COVID-19 crisis. Based on responses, the
preferred third-party source of funding to
6% be used within the next 12 months across
8% all regions is Governments/DFIs.
Banks
13%
Regional insights
5%
Respondents in East Africa expect to use
Governments/DFIs as the preferred third-
35% party source of funding. The significant
Governments/ 31% DFI investment in the region is likely due
DFIs 24% to COVID-19-associated risks impacting on
32% the availability of commercial capital, as
well as DFIs looking to make countercyclical
22% investments that impact investment
Pensions/ 21% segments.
Endowments 24%
In North Africa, respondents also consider
22%
Governments/DFIs to be the preferred
third-party source of funding. Fund of funds
14% and Pensions/Endowments both represent
21% the second-most preferred source of
Fund of funds
14% funding.
15%
In Southern Africa, Governments/DFIs
12% and Pensions/Endowments are expected
Private 10% to be the largest sources of funding,
individuals although the adverse economic climate
10%
and impact of COVID-19 may impact on
15%
fundraising, particularly from Pensions/
Endowments.
0% 5% 10% 15% 20% 25% 30% 35% 40%
DFI funding in West Africa is expected
from various developmental opportunities
East Africa North Africa Southern Africa West Africa that meet the investment objectives of DFIs
that focus on the region.
Source: Deloitte Africa analysis based on PECS 2021 results
Note: Regional totals may not add to 100% due to rounding.
222021 Deloitte Africa Private Equity Confidence Survey
Figure 17. Geographical sources for raising capital for investment activities by region within the next 12 months
26%
26%
United States
16%
30%
19%
15%
South Africa
47%
15%
0%
4%
North Africa
0%
0%
16%
19%
Middle East
14%
20%
30%
30%
Europe
16%
28%
9%
7%
Asia
6%
8%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
Source: Deloitte Africa analysis based on PECS 2021 results East Africa North Africa Southern Africa West Africa
Note: Regional totals may not add to 100% due to rounding.
Overall perspective persist, the need for new funding sources funding is expected to be sourced from
Key funding sources of PE in the past will intensify. Europe, followed by the US.
have been predominantly from outside of
Africa, including from the US and Europe.43 Regional insights In Southern Africa the largest portion of
Although the US and various European Most respondents in East Africa expect to funding is expected to be sourced from
countries have also been among the top raise capital from Europe and the US over South Africa, followed by Europe and the
10 sources of FDI into Africa since 2016, it the next 12 months. France has been a top US. Longer-term economic fundamentals
is, in fact, emerging markets such as China, M&A investor in Kenya in the 2020 financial continue to attract funds to the region,
Russia and the United Arab Emirates (UAE) year, while the United Kingdom (UK) had the given the established South African markets
that have been the top three sources of FDI highest deal value for inbound transactions and possible higher returns available for
into Africa.44 due to the Direct Pay Online acquisition in funders.
the same period.45 In addition, many East
Based on survey responses, the US and African funds have historically raised funds Countries within the West African region
Europe are expected to be the largest from European-based DFIs. are beneficiaries of several developmental
sources of PE funding for most African projects that make funds available for PE
regions, except for Southern Africa, where In North Africa, funding sources have investment into the region. The projects
South Africa is expected to be the largest been predominantly from outside the are backed by the US government,
source of funding. As liquidity challenges continent, and the largest portion of countries in Europe, and various DFIs.
232021 Deloitte Africa Private Equity Confidence Survey
Deloitte insights: Data analytics
in PE deals
Data analytics is a sector-agnostic concept, appropriate format, including focussed tools can be built, tailored to PE investment
which means all M&A participants can data packs and visual dashboards, policies. These tools can be enhanced by
leverage it to bolster their investment which will drive the “equity story” of the machine learning to understand items
efforts and unlock value throughout portfolio company up for sale. such as propensity to transact on both
the entire M&A lifecycle. PE firms stand the sell and buy side (therefore also using
• A well-designed deal-sourcing tool can
to benefit a great deal if data analytics data analytics to identify potential buyers
also help identify potential buyers.
and data science methods are applied on exit). Packaging this using visualisation
effectively. There are three commonly software will give the investor a visual and
asked questions relating to data analytics 2) How can portfolio companies dynamic snapshot of deal activity and a
in PE deals: benefit from concepts such as data user-friendly interface.
analytics and data science?
1) How does data analytics fit into the
PE investment lifecycle? To ensure that returns through
investments in portfolio companies are
Data analytics can be leveraged throughout maximised, it is critical that value creation
the PE lifecycle, including, but not limited is at the forefront of the investment
to, the following areas: thesis. Typically, value creation focuses
on areas such as revenue and margin,
• Advanced analytics and machine- cost management, effective budgeting,
learning concepts can be used to capex optimisation, operating models, and
build deal-sourcing tools to assist working capital management.
PE professionals to source the best
investment opportunities based on Data analytics tools can be deployed in Nisha Dharamlall
multiple data sources and investment each of these strategic areas and used Transaction Services Leader,
criteria. effectively to transform the “office of the Financial Advisory,
chief financial officer (CFO)” role, as well Deloitte Africa
• The due diligence process can leverage
as improve management decision-making
data-modelling techniques to handle
through data-driven reporting. Investment
and process large amounts of deal data
in the right technology, coupled with having
and use visualisation tools to present
a “digital” and “data” mindset, will set the
key deal findings, both of which are
portfolio company on the right path to
critical for negotiating a beneficial sale
unlock value for both management and the
and purchase agreement.
PE investor.
• PE firms can unlock value in their
portfolio companies through investing in 3) How can PE firms use data analytics
and leveraging financial and operational and data science to source deals?
Dave Weir
analytics to streamline processes and
Manager,
improve decision-making and risk Being able to maximise PE fund returns
Financial Advisory,
management. starts with identifying the right investment
Deloitte South Africa
opportunity. Increased access to third-
• When it is time to exit, a well-managed
party M&A data sources and internal
and maintained data environment
deal data means that, with the right data
will ensure sale readiness is achieved
analytics and data science expertise,
efficiently. All financial and operational
robust target identification or deal-sourcing
data points can be packaged into a deal-
2425
Sector
focus
While consumer-driven industries have
come to the fore in recent years, PE
fund managers have diversified their
strategies to invest across sectors such as
Information Technology (IT), Renewable
Energy, Infrastructure, and Real Estate.
Over the 2014-19 period, the largest
number of deals was in the Consumer,
Industrials, Financial Services, as well as IT
sectors, which all link with a growing middle
class. The sectors with the largest deal
sizes in the same period (thus attracting
a larger share of the deal value) have
included Communication Services, Utilities,
Energy, and Materials.46
Similar trends have been seen in terms
of FDI inflows into the continent: the
Energy and Resources sectors (Coal, Oil
& Gas) attracted the biggest share of FDI
by value over the five years to 2020. With
an increase in digitalisation and the roll-
out of payment solutions, the Financial
Services sector has also been the most
dynamic and attractive from an FDI project
perspective. However, due to the lower
required investment needed per project,
the sector has only attracted a small share
of investment inflows.47
The COVID-19 pandemic has exposed the
importance of and likely greater focus on
certain key sectors, such as Healthcare and
Pharmaceuticals, Education, and IT/TMT,
with PE houses attracted to tech-enabled
businesses that can sustain growth
through the current and any future regional
or global disruptions.
262021 Deloitte Africa Private Equity Confidence Survey
Figure 18. Sectors of most interest in East Africa before and following the According to respondents, prior to the
COVID-19 pandemic (ranked) pandemic, sectors of most interest in East
Africa included Education, Green Energy,
Healthcare and Pharmaceuticals, followed
East Africa (pre-COVID-19) by Infrastructure, Financial Services,
and TMT. An interest in Education, and
Education 1
Healthcare and Pharmaceuticals was
Green Energy/Clean Tech 1 mainly driven by the increasing demand
for quality education and better health
Healthcare and Pharmaceuticals 1
services by the region’s growing middle
Infrastructure 4 class.
Financial Services 4 East Africa has proven its potential for
TMT 6 renewable energy (solar, wind, geothermal,
and hydro). This, together with the region’s
Agriculture/Agribusiness 6 limited access to energy, has spurred
interest in Green Energy. The Infrastructure
Power/Oil and Gas/Utilities 8
sector has also seen growing interest. With
Food and Beverages 8 governments lacking adequate resources
to finance key projects, the private market
Manufacturing and Industries 8
has shown a rising interest in infrastructure
Retail 11 funding.
Support Services 12 Financial Services has been viewed
as a defensive sector, with attractive
Travel/Hospitality/Leisure 12
returns driven by good governance and
Real Estate and Construction 12 innovation around online and mobile
money platforms. TMT interest has been
driven mainly by increased innovations
and measures undertaken by various
East Africa (following COVID-19) governments. For example, in Ethiopia, the
liberalisation of sectors such as telecoms
Infrastructure 1
has attracted growing interest from
Green Energy/Clean Tech 1 investors.
TMT 1 The COVID-19 pandemic has adversely
Financial Services 4 impacted the Entertainment, brick-and-
mortar Retail, Hospitality, Leisure, and
Education 5 Travel sectors. As such, most PE firms are
keen to diversify their investment targets
Healthcare and Pharmaceuticals 5
in businesses that will be more resilient
Agriculture/Agribusiness 5 in the post-COVID economy. A stronger
focus on Infrastructure, Green Energy, TMT,
Power/Oil and Gas/Utilities 8
and Financial Services is expected going
Food and Beverages 8 forward.
Retail 10
Support Services 11
Manufacturing and Industries 11
Travel/Hospitality/Leisure 13
Real Estate and Construction 13
Source: Deloitte Africa analysis based on PECS 2021 results
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