Private Equity

How does Africa fare in tough times

Insights on the current state of the private equity market in Africa and trends in pricing over time.

The latest Bright Africa Private Equity research aims to highlight the current state of the private equity market in Africa, including South Africa, and trends in prices paid for private equity assets over time.

Globally, investor interest in private equity investing has been increasing. According to the 2020 McKinsey Global Private Assets Review, private market assets under management (including venture capital and private equity) have grown by USD 4 trillion over the past decade, an increase of 170%, and the number of active private equity firms has more than doubled. Over the same period, global public assets under management grew by roughly 100%.

In Africa ex. SA, interest in private equity assets has always been robust given the challenges of investing in many public markets. These include lack of liquidity, high brokerage fees and limited trading hours on some bourses. In South Africa, which has sophisticated public markets, increased interest in private equity has been driven in part by poor listed equity returns over the past five years.

In determining the current state of African private equity, we investigated the supply and demand for capital as indicated by fundraising for private equity funds and deal-making activity, revealing some interesting changes in the current year. In the private equity market, the level of fundraising for private equity funds and the level of activity from other buyers in the private markets, determine the supply of capital.

We have also looked at the perception of risk and returns compared to listed equity, and how perceptions have changed. To shed some light on this, we looked at the theoretical cost of equity, which reflects the perceived risk of the different markets. The dramatic impact of COVID-19 resulted in significant increases in perceived risk, wiping out gains shown by many African countries before the pandemic.

After examining all of these factors, which influence pricing, we then examined trends in both South Africa and Africa (ex. SA), where a significant difference between these markets — driven by notable differences in capital markets and the perception of risk and returns — can be observed.