Private equity

Investment activity over time

The extent to which supply of investable opportunities exists cannot be observed directly. However, the level of deal activity at which investors make such investments can be measured.


Classifications as per the GICS® (Global Industry Classification Standard)

Investment activity in the consumer discretionary sector remained stable over the year. Within this sector, investor interest has moved towards internet and direct marketing retail, education and communication services, and publishing. This shows a possible shift from targeting a broader target market with lower income to a smaller market with a higher income.

Investment activity in consumer staples has decreased by a considerable 38% in absolute terms and moved from 13% of total investment activity to only 7% as at June 2021. Consumer products have historically been the focus of private equity in Africa, due to the perceived opportunities resulting from the continent’s growing middle-class. The South African and Nigerian markets remained the bulk of consumer staples investments, with other countries attracting less investments within this category.

The Covid-19 pandemic has exposed the importance of and likely greater focus on specific key sectors, such as healthcare and pharmaceuticals, education, and IT, with investors attracted to tech-enabled businesses that can sustain growth through the current and future regional and global disruptions.

Internet and direct marketing retail companies, which are classified as a subsector of the consumer discretionary sector, have enjoyed a 63% growth. Given recent events as a result of the global pandemic, the shift to online retail has been accelerated. E-commerce in many parts of the world is likely to be revolutionised and could present substantial opportunities. Africa’s large and growing young population is expected to continue to drive demand for online retail and services. According to the United Nations Conference on Trade and Development’s Business-to-Consumer’s e-commerce index of 2020, Mauritius, South Africa, Tunisia, Algeria, Ghana, Libya, Kenya, Nigeria and Morocco all rank within the top 100 of the index globally.

Despite the positive drivers for online retail and services, several factors limit e-commerce’s expansion throughout the continent. These include high broadband costs, low bank card penetration, and limited e-commerce payment options. Ironically, these same factors present opportunities to invest in innovative infrastructure solutions that enable e-commerce in Africa.

Investment activity in the IT sector (excluding internet and direct marketing retail companies) experienced significant growth of 49% from June 2020 to June 2021, with its proportion of total investments increasing from 24% to 30%. Investment in this sector in Africa mostly consists of internet software and services, application software, and data processing and outsourced service companies, with the large majority directed towards venture capital application software. Egypt, Nigeria, South Africa and Kenya attract the highest level of investment into the IT sector on the continent.

According to Bain & Company’s Global Private Equity Report 2021, the number of PE deals slumped across the business landscape compared with the five-year average, except for the technology and telecom sectors. Globally, the broad technology sector attracted the most PE investment in 2020 (29% of total buyout deal count globally, 32% including fintech), with several subsectors standing out. Funds gravitated towards software as a service (SaaS) based businesses with particularly sticky business models.

Following a subdued period ending June 2020, investments in the healthcare sector increased by 40% as of June 2021, with venture capital investments in the ‘technology healthcare’ subsector attracting the most transactions, where Egypt and South Africa are the biggest gainers. This was primarily driven by the increased focus on the sector and opportunities. The 2021 Deloitte Africa Private Equity Confidence Survey notes that the pandemic revealed gaps in the healthcare systems in the region, increasing investments that are expected to improve access to medical equipment and healthcare facilities in the broader health ecosystem.

The other two traditionally large sectors for investment — financials and industrials — have attracted similar levels of investment activity in the period ended June 2021 when compared to the prior year. Industrials include the construction, engineering, transport, logistics, equipment, and machinery industries. Investment is mostly in the light industrial sector with a focus on import substitution. The two above-mentioned sectors have contributed a total of 9% and 13% of the total investment activity respectively as at June 2021.

Weighing in at 10% of investment activity, the communication services sector saw a 43% increase as at June 2021. The largest sub-sector of this category is Interactive Media and Services, which includes companies engaging in content and information creation for distribution through proprietary platforms. Interactive media adoption grew largely on the back of the pandemic, which catalysed the shift towards digital media consumption.

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