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Africa private equity: Deep value in mid-cap sector

Nick Tims, managing director at Investec Asset Management, shares his thoughts on the Deloitte Africa Private Equity Confidence Survey

The first Deloitte Africa Private Equity Confidence Survey corroborates many of our views on the private equity landscape in West, East and Southern Africa. The consumer sector in its broadest sense – and we include areas such as logistics, healthcare, education and consumer-related technologies – is predictably the sweet spot for most firms, and that is also reflected in our deal focus for the Investec Private Markets team.

We have observed that competition is clearly increasing, but more so at the larger end of the deal spectrum, where the bigger African funds are getting significantly bigger and the global behemoths are dipping their toes. There are clear implications for valuations, given the paucity of deal flow in the larger cap space, as well as the added interest in this area from corporates, especially – but not limited to – South Africa.

We continue to find deep value in the so-called mid-cap segment, and right across the continent, especially in countries like Nigeria, Mozambique, Kenya, Ghana and South Africa. Competition for these transactions is significantly lower and we believe there are gems waiting to be unearthed.

We have also observed that East Africa is a conundrum in many ways. With very promising macroeconomic fundamentals, firms are desperate to find deals in the region, but deal flow has been largely a frustration, with a very small number of stand-out exceptions to that. This is corroborated by the survey’s percentage of small- and medium-sized enterprises being targeted there (the highest in the survey) and the much higher proportion of deals under $6m. This will change over time and the region is a major focus for us as this situation doesn’t wholly compute

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