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North Africa continues to demonstrate private equity investment potential

Cairo, Egypt

Cairo, Egypt

Continued deal activity, more diversified exit routes and stable fundraising environment prove North Africa’s potential as an investment destination. The latest Spotlight on North Africa Private Equity (PE) compiled by the African Private Equity and Venture Capital Association (AVCA) shows continued stability following a period of local, political, and global economic challenges.

Research findings highlight continued investor interest in the region, accounting for 15% of the total number of PE deals in Africa between 2010 and 2016H1. North Africa, which benefits from its proximity to Europe and its close commercial and diplomatic ties with France, continues to be driven by a strong manufacturing base and its demographic potential, as middle-class consumer demand continues to grow in sectors such as education, healthcare and retail.

A 139 PE deals were reported in North Africa from 2010-2016H1, with a total deal value of US$2.4bn. Morocco, Tunisia and Egypt, among the most mature PE markets on the continent, continued to dominate investment in the region, with the triumvirate accounting for 95% and 94% of all deals made by number and value. The current investment cycle has identified increased investor interest in Morocco, which remains the leading country for investment in North Africa accounting for 46% in number of deals reported and 41% in value of deals between 2010 and 2016H1. With 40%, Egypt, in turn, accounted for the second largest share of PE deal value by country for the same period. In both instances, investors were attracted by increasing political stability and attractive company valuations.

Findings further demonstrate an increasing number of exits in the last few years. A comparably steady number of 59 exits were reported from 2010-2016H1, with sales to trade buyers and PE firms accounting for a significant proportion due to the region’s beneficial proximity to Europe. The research also highlighted increasingly diversified exit routes available to investors in Tunisia and Egypt, which is attributable to historic investor interest in past investment cycles that have led to a combined total of 71% of the total number of exits reported and are now showing results. Exit findings overall indicate increasing intra-African investment, with a significant amount of PE capital targeting North Africa coming from pan-African funds. Foreign institutional investors, in turn, are showing signs of re-evaluating opportunities across the region this year as growing political stability and supportive policy reforms by local governments are creating a more favourable investment environment.

Commenting on the research findings, Ziad Oueslati, managing director and co-founding partner of AfricInvest and AVCA member, said: “North Africa is still one of the most attractive regions in Africa with an increasingly mature market for PE investment, which is demonstrated through the diversification of exit routes, including sales to other PE firms and IPOs. If political stability and new government reforms continue across key markets in North Africa, this will boost investor confidence even further.”

Sev Vettivetpillai, partner at The Abraaj Group and member of the AVCA Board of Directors, added: “North Africa continues to attract investors due to its strong manufacturing base and rising consumer demand in sectors such as education, healthcare and retail. Our outlook for investment in these sectors is positive as the region remains driven by a growing young middle class demographic and benefits from a large population and consumer market.”

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