Steep rise in African private equity and venture capital dealmaking

Lagos, Nigeria

Lagos, Nigeria. The West African region accounted for the majority of private capital deals in 2021.

How we made it in Africa takes a closer look at African private equity and venture capital deal activity in 2021 as highlighted by AVCA’s latest African Private Capital Activity Report (download as PDF).

Private capital investments rose to record breaking levels in 2021. The $7.4 billion in private capital deal value more than doubled 2020’s total of $3.4 billion, surpassed the previous record of $4.8 billion reached in 2017, and represented an 85% increase compared to the historical annual average deal value over the period 2016-2020 ($4 billion). The accumulation of unspent capital pre-Covid-19 pandemic, coupled with the Covid-19 deal activity hiatus, resulted in fund managers’ increased appetite to deploy capital to work across the continent.

Consequently, this increase of investment activity in 2021 was mainly the result of the accelerated pace of capital deployment by private capital fund managers in the post-Covid era across various investment strategies and sectors.

The pace of venture capital (VC) deal making has noticeably gained momentum since 2016 and led the resurgence of 2021 private capital investments with $4 billion worth of VC deals being executed within the year. Venture capital investments accounted for 54% of the total deal value reported in the year, and corresponded to more than the total deal value of 2020. Some notable venture capital investments recorded in 2021 include the $400 million series C investment round in the Africa-focused digital payment startup, OPay; the $250 million investment in the drone delivery startup, Zipline, by a consortium of investors including Emerging Capital Partners; and the $200 million series E investment round in Andela, the global network for remote engineering talent.

Infrastructure investments also punctuated the deal value in 2021 totalling $1.8 billion, and accounting for 25% of the total value of private capital investments. These infrastructure investments were focused on renewable energy projects, transportation infrastructure, telecommunication services, and data centres. With data centres being a prerequisite for developing rich and self-sufficient ICT ecosystems, and as the demand for data centre services in Africa continues to grow, this sector is expected to attract an increasing interest from both infrastructure-specific and generalist fund managers. An example is the African Infrastructure Investment Managers’ acquisition of a majority stake in Ngoya Etix DC (renamed Onix Accra 1), a carrier-neutral data centre located in the Greater Accra region of Ghana, in March 2021.

As dynamic as the market for deal value was in 2021, the deal volume was just as strong. The total number of private capital deals reached a record high of 429, an over 100% increase from the annual average deal volume (215) from 2016 to 2020. The volume of private capital deals in Africa has been on an upward trend since 2016 and grew at a rate of 19% over the period 2016 and 2021.

Investment ticket sizes

While the volume of deals soared to 429 in 2021, up 66% from 2020, the growth in the value of capital deployed far outpaces the growth in the number of deals executed. The trend toward bigger funds doing larger sized deals accelerated in 2021. Deals sized between $100 million and $250 million presented a remarkable increase in 2021, accounting for 40% of the total deal value. The value of these deals in 2021 has almost tripled compared to the historical annual average share (14%) between 2016 and 2020, and accounted for $2.9 billion. These investments were driven for the first time, by venture capital super-sized deals that attracted 63% of the volume and 58% of the value of these investments. An example is the $100 million series C investment round in MFS Africa, a pan-African digital payment hub, by a consortium of investors including AfricInvest FIVE. Additionally, deals above $250 million in size, accounted for 24% of the total value of private capital investments during the year. These large deals were concentrated in infrastructure projects and venture capital investments across financials, utilities, and industrials sectors.

The spike in deal activity in 2021 was not only due to super-sized deals but also the increased volume of smaller sized deals largely driven by venture capital investments. In 2021, deals below $50 million in size accounted for 90% of the total number of investments, and reached a record of $2 billion. This is 67% above their annual average value between 2016 and 2020 ($1.2 billion), and represents 27% of the total value of private capital investments during the year.

Geographic focus

From a regional perspective, West Africa has once again confirmed its position as the leading force on the continent and attracted the largest share of deal volume at 33% in 2021, an impressive growth of almost 3x compared to the annual average of the deal volume between 2016 and 2020 (50 deals). The deal volume reported in West Africa was dominated by Nigeria, the largest economy on the continent, which concentrated 69% of the region’s total deal volume in 2021. West Africa’s increase in deal activity was driven by venture capital investments, which accounted for 86% of all deals reported within the region. Fintech dominated West Africa’s venture capital scene attracting 45% of the total number of venture capital deals. A notable example is the $200 million series A investment round in the Senegal-based mobile money provider, Wave, by a consortium of investors. Additionally, almost half (44%) of infrastructure investments recorded on the continent in 2021 were in West Africa.

Southern Africa fell behind West Africa in terms of deal volume in 2021 and accounted for the second largest share of private capital deals (20%) with South Africa – the region’s most mature and sophisticated market for private capital – attracting 78% of the deal activity.

North Africa’s increasing share of deal volume has been driven by the growing interest of investors in Egypt, which has emerged as a prominent hub for venture capital investments. In 2021, North Africa accounted for the third largest share of deal volume (17%), with Egypt attracting 69% of the region’s deal activity by volume.

East Africa’s declining share of deal volume and value does not reflect a decrease in investors’ appetite for investment opportunities within the region but rather indicates the strong dynamic of other regions. In 2021, East Africa attracted the fourth largest share of deal volume, with Kenya accounting for 66% of the total deal volume followed by Uganda (13%).

Large multi-region deals with operations across different regions within Africa have accounted for the largest share of deals by value. In 2021, the share of multi-region deals reached 40% of the total value of private capital investment reported, $3 billion. These deals were driven by deals between $100-250 million in size, which accounted for two third (70%) of the total deal value of multi-region investments. Within multi-region investments, the financial services sector accounted for 36% and 47% of the total volume and value respectively. Investments in financial technology companies operating across multiple countries within Africa significantly contributed to the dominance of multi-region deals.

Although Central Africa has attracted the smallest share of the volume of private capital deals on the continent, the region has seen a handful of large deals in infrastructure related sectors that have significantly affected the region’s share of deal value within Africa. In 2021, Central Africa accounted for 14% of the total deal value, driven by large infrastructure projects in Gabon’s transportation and renewable energy sectors. A notable example is the Meridiam and Gabon Power Company’s financing of Kinguélé Aval hydroelectric power plant in Gabon, which reached its financial close in July 2021.

Sector focus

Private capital fund managers have invested across a broad range of industries, with sectors that benefit directly from Africa’s growing consumer market and increasing level of digitalisation seeing the most activity by volume.

In 2021, financials experienced remarkable growth, attracting the largest share (30% and 39% respectively) of the total volume and value of investments reported in Africa. This was the result of a handful of large deals in fintech companies operating across the continent. Some notable examples within Africa’s fintech space include the series C investment round in Chipper Cash, an Africa cross-border payments company, which raised a combined $250 million in May and November 2021 by a wide range of investors; the $120 million investment in the Egyptian fintech, MNT-Halan, in September 2021 by a consortium of global investors. The growth of the financial sector is further highlighted by the historical trend since financials’ share of deal volume and value increased to 24% and 29% in 2019-2021, from 13% and 7% respectively in 2016-2018.

Fund managers have also invested in sectors that help plug Africa’s infrastructure deficit such as utilities, communication services, and transport. Utilities attracted a substantial share of private capital investments by value (18%) from 2016 to 2021, because of the significant capital required to construct renewable energy projects, which accounted for the majority of the value of the utilities sector.