DealMakers AFRICA Q1 2021
Q1 2021 M&A and Private Equity Activity in East Africa
by Kevin Kuria
Private Equity and Venture Capital (referred to collectively as PE) investment activity was robust in the first quarter of the year, compared with 2020. A total of 14 investment deals were closed in Q1 2021, matching the activity in Q1 2020. Investment deal values in Q1 2021 were up 8.5% over the same period in 2020, at US$224.6 million. The median deal value in Q1 2021 was c. US$6.0 million, down from c. US$17.5 million in Q1 2020 – a 65.7% drop. A significant proportion of PE investment activity was attributable to the VC segment where deals have been easier to execute under restricted conditions, and also as a result of the lower transaction values that are typical of the segment, which, in turn, mean more flexible diligences can be conducted.
The market recorded one exit in the financial services sector in Q1 2021. Exits have been a challenge for many funds in the region, and the challenge has been further compounded by the tough economic conditions caused by the coronavirus pandemic and ensuing restrictions that have negatively affected business’ performance, as well as transaction processes.
Anecdotal evidence from discussions with LPs in the region, largely consisting of European DFIs, and with GPs, implies that the LPs have taken an accommodative stance in light of the pandemic and, in some cases, may allow for longer investment horizons to enable more profitable exits further down the line. However, based on our market interactions, we have started to witness funds with assets that performed well in the last year instituting exit proceedings, and thus expect to record more exits during the year, with a further build up in 2022 ahead of the general elections in Kenya.
We expect that there will be a pick-up in PE investment activity in the coming months, driven by significant liquidity in the PE markets and the lifting of some lockdown restrictions. As with the global private equity industry, a large cross-section of funds in the region have significant dry powder and are incentivised to deploy it; this coming at a time when a cooling of asset prices and, specifically, comparable multiples has been witnessed in the region. Investors and advisors have also become more adept at executing transactions and due diligence exercises in restricted conditions.
M&A activity in East Africa remained low with a total of four transactions having been recorded in Q1 2021, down from five and seven in the same period in 2020 and 2019, respectively. No M&A transaction values were disclosed in Q1 2021. This is attributable to the effects of COVID-19 on trade player appetite for acquisitions, as most focused on shoring up their operations; but also to the general business challenges experienced in the region in the last five years, which have led to a general decline in foreign trade player-led M&A activity. We do, however, see interest to make acquisitions from local businesses that have weathered the pandemic well, and who are looking to exploit the pandemic’s impact on valuations to both expand within their core sectors and diversify.
The ICT and telecommunications sectors witnessed the most activity in Q1 2021, recording five transactions with a total disclosed deal value of c. US$36 million. The financial services sector followed closely behind with four deals, whilst the FMCG, F&B and logistics sectors had two deals each during the period.
Kuria is an Associate Vice President | I&M Burbidge Capital, Kenya.