Private equity activity in East Africa

Private equity activity in East Africa is on the rise, with over half of limited partners (LPs) planning to increase their allocation for the African private equity market in the next three years. A recent survey by the African Private Equity and Venture Capital Association has shed light on the key sectors that are likely to attract these investments, including consumer goods, financial services, healthcare, and agribusiness. Anita Obasanjo-Adeleye, Director of Research at the Association, provided insights into the performance of the private equity market amidst political uncertainty and the challenges faced by LPs in fundraising. The private equity market in East Africa has proven to be resilient amidst periods of turbulence and uncertainty. Private equity funds have demonstrated the ability to navigate through currency volatility and political instability by leveraging their skills and expertise. In a forthcoming report, the African Private Equity and Venture Capital Association will highlight how PE firms capitalize on short-term challenges to deploy capital and support businesses that struggle to access traditional funding sources like banks. LPs, as key players in the private equity ecosystem, are increasingly seeking co-investment opportunities with PE firms. While LPs have historically been hesitant to collaborate due to revenue concerns, the landscape is evolving towards more partnerships. PE firms are now inviting LPs to invest alongside them in larger transactions, indicating a growing market and attractive investment opportunities. The willingness of LPs to engage in co-investments underscores the potential for further market expansion beyond current fund sizes. Despite the growing interest in African private equity, LPs still face challenges in fundraising. Approximately 64% of LPs find fundraising a challenge due to the lack of track record among fund managers. The industry's relative youthfulness means that many first-time fund managers lack the proven experience that LPs seek. However, the presence of emerging fund managers in East Africa who are on the brink of raising their second or third funds shows promise for addressing this challenge. LPs are increasingly prioritizing fund managers with a successful track record in investment and exit strategies. In terms of sector priorities, consumer goods, financial services, healthcare, and agribusiness are in the spotlight for LPs allocating funds to African private equity. The consumer theme remains strong due to the vast population in key African markets, driving investment in SMEs and fast-moving consumer goods. Additionally, LPs are exploring opportunities in infrastructure, particularly in response to rapid urbanization and the demand for social infrastructure like healthcare and education. This shift towards essential services underscores the evolving spending priorities of African consumers. In conclusion, the private equity landscape in East Africa presents both opportunities and challenges for LPs seeking to increase their allocation to the market. With a focus on collaboration, proven track records, and strategic sector priorities, LPs can navigate the dynamic environment of African private equity and contribute to its continued growth and development.