2021 Deloitte Africa Private Equity Confidence Survey - June 2021

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2021 Deloitte Africa Private Equity Confidence Survey - June 2021
2021 Deloitte Africa Private
Equity Confidence Survey
June 2021
2021 Deloitte Africa Private Equity Confidence Survey - June 2021
2021 Deloitte Africa Private Equity Confidence Survey - June 2021
Contents

Foreword                                                                 02

Key highlights                                                           04

Economic climate                                                         06

  Deloitte insights: Market approach valuation post-COVID-19             11

Investment landscape                                                     12

  Deloitte insights: Providing growth solutions to private enterprises   19

Fundraising environment                                                  20

  Deloitte insights: Data analytics in PE deals                          24

Sector focus                                                             26

  Deloitte insights: Early intervention can help reduce strain on
underperforming portfolio companies                                      31

Acronyms                                                                 32

Methodology                                                              33

Acknowledgements                                                         33

Endnotes                                                                 34

Contacts                                                                 35

                                                                              01
2021 Deloitte Africa Private Equity Confidence Survey - June 2021
2021 Deloitte Africa Private Equity Confidence Survey

Foreword
We are pleased to present the 2021 Deloitte
Africa Private Equity Confidence Survey
(PECS). This publication is centred around
valuable insights into how fellow private
equity (PE) practitioners view the African
PE landscape, specifically their future
expectations over the next 12 months.

To supplement the forward-looking                       Gladys Makumi                 Clinton Wolder
perspectives, the publication also                      Partner                       Partner
incorporates publicly available                         Financial Advisory            Financial Advisory
macroeconomic data and commentary on                    Deloitte East Africa          Deloitte Africa
the current PE landscape and foreign direct
investment (FDI) trends.

Prior editions of the PECS have focussed
on East, Southern and West Africa. For the
2021 publication, we are excited to have
extended the survey to also include North
Africa.

Despite a challenging 2020 and the
                                                        Damien Jacquart               Temitope Odukoya
prevailing uncertainties around the
                                                        Partner                       Partner
timeframe of the pandemic, investment
                                                        Financial Advisory            Financial Advisory
and economic conditions are expected
                                                        Deloitte Francophone Africa   Deloitte West Africa
to improve as countries implement a
range of measures to recover from the
impact of COVID-19. While there will be
various headwinds and challenges to
navigate, including effective vaccine roll-out
strategies, growth prospects are positive.

As a proven agile asset class, the PE
industry is expected to play a key role
in the economic recovery and projected
increase in investment activity over the
next 12 months. Although investment
strategy and related returns will be key,
we also foresee an increased social
responsibility to drive PE activity. This aligns
with the survey expectation that funding
will largely be obtained from development
finance institutions (DFIs).

We would like to thank all those who
completed the survey and thereby
contributed to us being able to deliver the
message of investor confidence over the
next 12 months.

02
2021 Deloitte Africa Private Equity Confidence Survey - June 2021
03
2021 Deloitte Africa Private Equity Confidence Survey - June 2021
2021 Deloitte Africa Private Equity Confidence Survey

Key highlights

        Economic climate

           Africa’s Gross Domestic Product (GDP) growth is forecast to
           rebound in 2021 and 2022 after the adverse impact of COVID-19
           in 2020. This is supported by a projected improvement in exports,
           commodity prices, and private consumption.

           In line with an anticipated rebound in growth across the
           continent, respondents expect the overall economic climate in
           the four regions covered in this report – East, North, Southern
           and West Africa – to improve over the next 12 months.

           Ghana, Kenya, Morocco, and South Africa are the expected key
           target investment countries in their respective regions.

                             Investment landscape

                                                                             An average lifecycle of five to seven years from initial
          PE activity is expected to increase across all regions, driven     investment to exit is expected across three of the four
          largely by the anticipated rebound in economic activity.           regions, except for Southern Africa. In Southern Africa, most
                                                                             respondents expect this to be more than seven years.

                                                                             The number of exits is expected to remain the same over
          Most respondents expect an increase in PE investments
                                                                             the next 12 months across the four regions. This is largely
          over the next 12 months across East, North, Southern,
                                                                             expected as current adverse economic conditions and
          and West Africa based on the expected recovery from the
                                                                             COVID-19-related economic and commercial uncertainties
          adverse economic impact of COVID-19.
                                                                             impact transaction activity, valuations and the timing of exits.

          Respondents expect average deal sizes to largely remain
                                                                             Sales to strategic investors and secondary sales to PE are
          below US$50m, in line with the growing level of mid-fund-
                                                                             expected to be the favoured exit routes for all regions.
          sized deal activity across the continent.

04
2021 Deloitte Africa Private Equity Confidence Survey - June 2021
2021 Deloitte Africa Private Equity Confidence Survey

                    Fundraising environment

 The fundraising environment is largely
                                                       DFIs are expected to be the most preferred
 expected to improve or remain the
                                                       third-party source of funding over the next
 same across all four regions, based on
                                                       12 months. DFIs have played and continue
 the expected improvement in economic
                                                       to play a key role in the PE industry.
 forecasts and increase in transaction activity.

                                                       The United States (US) and Europe are
 Fundraising timelines are expected to
                                                       expected to be the largest sources of funding
 increase across all four regions, driven by
                                                       for most of the African regions. In Southern
 an anticipated tightening of fundraising
                                                       Africa, South Africa is projected to be the
 processes and related requirements.
                                                       largest source of funding for the region.

                                                   Key sectors of interest before the COVID-19
                                                   pandemic included Education and Green Energy.

Sector focus
                                                   The COVID-19 pandemic has highlighted the importance
                                                   of and likely greater focus on certain key sectors such
                                                   as Healthcare and Pharmaceuticals, Education, and
                                                   Technology, Media and Telecommunications (TMT).

                                                                                                                       05
2021 Deloitte Africa Private Equity Confidence Survey - June 2021
2021 Deloitte Africa Private Equity Confidence Survey

Economic climate
The COVID-19 pandemic has widely tested                As economic activities have resumed in                increased domestic demand. East Africa’s
the resilience of African economies and has            most parts of the continent, SSA growth               economic growth is forecast to rebound to
severely impacted some of the continent’s              is forecast to rebound to 3.4% and 4% in              4.5% in 2021.
fastest-growing economies.                             2021 and 2022 respectively, supported
                                                       by expected improved performance in                   Having decreased from 9% in 2019 to
Having battled with sluggish growth                    exports, commodity prices, and private                6.1% in 2020, the slowing yet still positive
since 2016, Africa’s aggregated growth                 consumption.2                                         growth rates seen in Ethiopia in 2020 (and
performance was not left unscathed by                                                                        expected in 2021, at 2%), result from a
the COVID-19 pandemic. The pandemic                    Regional economic outlooks                            series of economic shocks, which include
has seen African governments prioritise                East Africa’s economic growth has been                the spread of COVID-19, the disruption of
emergency responses to the global health               largely driven by strong public spending on           the global air transport sector, a worsening
crisis, including lockdown measures, which             infrastructure, and incentives for industrial         food security situation, and escalating
have detracted from the pursuit of robust,             development. The economic disruption                  violence in the Tigray region. In addition,
inclusive, and sustainable growth strategies           resulting from the COVID-19 pandemic                  security risks surrounding general elections
across all regions.                                    has seen the region’s expected growth                 scheduled for June 2021 are expected to
                                                       for 2020 drop to 1.8%, down from 7.2%                 further weigh on consumer and business
GDP growth in Sub-Saharan Africa (SSA)                 in 2019, making it the only African region            activity. The country is projected to see a
was recorded at 3.2% in 2019. GDP growth               to record positive growth in 2020. This               distinct growth recovery in 2022 to 8.7%.
in SSA then contracted by -1.9% in 2020,               was supported by Ethiopia’s economic
owing to sizable direct and indirect impacts           performance,3 public infrastructure
on economic activity through both demand               spending, industrial development, and
and supply shocks.1

Figure 1. Weighted regional real GDP growth (%), 2019-23f

8.0%        7.2                                       7.3

6.0%
                              4.8 5.3
                        4.5                                                                                                     4.0                      4.0 4.1
4.0%                                     3.7                                                                              3.7
                                                                                                       3.5          3.5                            3.4
                                                                                     2.5 2.5 2.4                                      3.2
2.0%              1.8
                                                            1.5 1.3
                                                                        0.2
0.0%

                                                                                                             -0.7
-2.0%
                                               -1.8                                                                                         -1.9

-4.0%

-6.0%
                                                                              -6.0

-8.0%
                  East Africa                  North Africa               Southern Africa                    West Africa                           SSA

     2019         2020           2021f       2022f             2023f

Source: Deloitte Africa analysis based on International Monetary Fund, World Economic Outlook, April 2021

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2021 Deloitte Africa Private Equity Confidence Survey - June 2021
2021 Deloitte Africa Private Equity Confidence Survey

Most East African economies experienced        i.e. a halt in economic activity largely in        country was the least affected by COVID-19
economic contractions in 2020, impacted        Q2 of 2020. The country’s growth rate              in the region in 2020. However, growth is
by reduced trade flows and temporary           is projected to rebound to 3.1% in 2021,           expected to slow further in 2021 to 2.5%
closures of businesses. Rwanda’s economy       supported by an expected recovery in               and then recover to 5.7% in 2022.15
contracted by -0.2% in 2020 from 9.4%          household consumption and exports.9
in 2019 and is expected to rebound to                                                             Morocco entered a recession in 2020,
5.7% in 2021. The latter is driven by an       In West Africa, GDP growth dropped from            owing to a drop in domestic demand,
expected recovery in the services sector       3.5% in 2019 to -0.7%10 in 2020, largely           disruptions in value chains, decline in
and a generally revamped private sector.       from the economic slowdown in Nigeria,             private consumption, as well as a drought
In Kenya, the National Treasury estimated      a decline in commodity prices, reduced             which contracted agricultural value added
the country’s growth rate to reach 0.6%        financial flows, and a slower recovery from        by 7.1%.16 Economic growth in Morocco saw
in 2020, down from 5.4% in 2019.4 With         the 2015/16 recession.11 In 2020, West             a sharp decline from 2.5% in 2019 to -7.0%
the country having faced a third wave          Africa was the second-best performing              in 2020, but is expected to recover to 4.5%
of infections in March 2021,5 growth           region after East Africa, recording the            in 2021.17
recovery continues to be uncertain. A key      smallest growth contraction in Africa in
risk to Kenya’s economic performance           2020. Growth in the region is expected to          While these forecasts currently reflect
in 2022 is the scheduled elections in the      rebound to 3.5% in 2021.                           an expected economic rebound and
same year, which may potentially impact                                                           subsequent recovery in GDP growth across
economic activity. Other risks include the     In the region’s biggest economy, Nigeria,          regions, this outlook is subject to various
slow vaccine roll-out and another possible     economic growth declined from 2.2% in              risks (both domestic and external).
wave of infections in Q3 of 2021. Growth       2019 to -1.8% in 2020. Nigeria is expected
is forecast to rebound to 6.6% in 20216 as     to see a slow recovery to its pre-pandemic         Projections are highly dependent on
activity is expected to resume following the   levels in 2021 (2.5%) and 2022 (2.3%).12           the containment of the virus, vaccine
COVID-19 lockdowns, boosting tax revenue       Ghana suffered from a reduction in export          distribution, continued progress in
and government spending.                       revenues from oil and cocoa, and from              structural transformation, leveraging
                                               the effects of the COVID-19 pandemic               initiatives such as the Africa Continental
Southern Africa experienced the largest        measures, such as disruptions to global            Free Trade Area (AfCFTA) agreement,
contraction among its peer regions in 2020.    commodity-based supply chains, and                 commodity price developments,
GDP growth contracted by -6% in 2020,          decreased commodity exports. However,              economies’ debt trajectories on account
impacted by poor economic performance          growth rates in Ghana remained positive            of mounting fiscal deficits, as well as the
in the region’s largest economies, South       after dropping from 6.5% in 2019 to 0.9% in        policy measures adopted by countries in
Africa and Angola, as well as other factors,   2020. Growth, although marginal, stemmed           the region.18
which included supply-side constraints,        from the positive contribution of net gold
weak commodity prices, eroded export           exports, combined with favourable gold
growth, and constrained fiscal space.7         and cocoa prices, as well as a recovery
Southern Africa’s growth rate is projected     in the Construction and Manufacturing
to rebound in 2021 to 2.5%.                    sectors.13 The country is expected to see
                                               growth of 4.6% in 2021 and a further
South Africa has been grappling with low       increase to 6.1% in 2022.14
growth, increased public debt, and high
unemployment rates for many years.8 Real       North Africa’s GDP growth declined from
GDP growth in South Africa declined from       3.7% in 2019 to -1.8% in 2020. The region is
0.2% in 2019 to -6.9% in 2020, supressed       projected to have a strong rebound in 2021
by the above-mentioned factors which           to 7.3%, with growth reducing to 1.5% in
were further impacted by the country’s         2022. Real GDP growth in Egypt dropped
response measures to contain the virus,        from 5.6% in 2019 to 3.6% in 2020. The

                                                                                                                                                07
2021 Deloitte Africa Private Equity Confidence Survey - June 2021
2021 Deloitte Africa Private Equity Confidence Survey

Respondents’ views on the economic                  Figure 2. Expected change in the economic climate by region over the next 12 months
outlook and focus of funds
In early 2021, Deloitte Africa surveyed
general partners (GPs) and limited partners
                                                    70%
(LPs) to understand their views of the                      65%
impact of COVID-19 on the economic
                                                                                                         57%                  59%
climate, the country focus of funds,                60%                            56%
the investment landscape, fundraising
environment, and sector focus in East,              50%
North, Southern and West Africa over the
next 12 months.19
                                                    40%
A summary of the results is discussed in                                                                          31%               32%
the sections that follow below.                     30%
                                                                  26%                          25%
Overall perspective                                                                      19%
                                                    20%
Following the onset of the COVID-19
pandemic and the resultant slump in                                                                                     11%
growth across Africa in 2020, respondents           10%                  9%                                                               9%
expect the overall economic climate in each
region to improve.                                  0%
                                                               East Africa           North Africa         Southern Africa       West Africa
Regional insights
Economic growth in East Africa is
                                                        Improve               Remain the same           Deteriorate
projected to recover in 2021 and 2022.
The vaccination campaigns, growing
consumption, investment, and trade will be          Source: Deloitte Africa analysis based on PECS 2021 results
the key drivers for a projected economic            Note: Regional totals may not add to 100% due to rounding.
rebound.

While more than half of respondents                 The majority of respondents are optimistic       The expected improvement in West Africa
expect an improvement in North Africa,              regarding the economic outlook for               follows the anticipated continued progress
one in four respondents feel that the               Southern Africa, although a stuttering           in managing the pandemic, as well as the
region’s economic climate is likely to              vaccine roll-out programme coupled with          expected success of vaccine distribution in
deteriorate over the next 12 months. Only           fears of further waves of infections as well     countries within the region.
Egypt’s economic growth has been strong             as fiscal pressures, exacerbated by COVID-
and resilient, despite the adverse health           19-related costs, and tighter monetary
impact of the pandemic.20 Other countries           policies, could impact on expectations. In
in the region contracted significantly in           South Africa, electricity supply shortages
2020. Effective vaccine campaigns in the            will remain a binding constraint on growth
region are likely to boost consumer and             over at least the next two years.
business confidence, consumption, and
investments.

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2021 Deloitte Africa Private Equity Confidence Survey

Figure 3. Countries in East Africa that funds aim to focus on over the next 12 months                 Although East Africa has been a smaller
                                                                                                      PE investment destination, only attracting
                                                                                                      about 16% of deals by volume, and 8%
30%
              27%                                                                                     by value over the 2014-19 period,21 the
                                                                                                      region is expected to be a key investment
                                                                                                      destination going forward, owing to its
25%
                                                                                                      attractive macroeconomic outlook.
                               22%
                                                                                                      The focus of funds in East Africa over the
20%                                             19%
                                                                        17%                           next 12 months is expected to be on Kenya,
                                                                                                      Uganda, and Ethiopia. Ethiopia and Kenya
                                                                                      15%             have been key investment destinations for
15%                                                                                                   FDI in the region over the 2016-20 period.22

                                                                                                      Kenya’s attractiveness to international
10%                                                                                                   investors stems from its diversified
                                                                                                      economy and continued focus on
                                                                                                      infrastructure development, its status as
5%                                                                                                    the largest economy and commercial hub
                                                                                                      of East Africa, as well as supporting policies
                                                                                                      such as the Big Four Agenda and Vision
0%                                                                                                    2030.23
              Kenya

                               Uganda

                                                Ethiopia

                                                                        Rwanda

                                                                                       Tanzania

                                                                                                      Ethiopia has become attractive for PE and
                                                                                                      other investment owing to the current
                                                                                                      regime’s economic reforms, the size of its
Source: Deloitte Africa analysis based on PECS 2021 results                                           population, and relatively high economic
                                                                                                      growth forecast. The demand for capital
                                                                                                      from the growing private sector, and local
                                                                                                      banks’ inability to meet this demand, makes
Figure 4. Countries in North Africa that funds aim to focus on over the next 12 months                Ethiopia an ideal destination for PE funds.
                                                                                                      However, persistent foreign exchange
35%             34%                                                                                   shortages in the country present a major
                                        32%                                                           challenge to private investors.

30%
                                                                                                      North Africa has been a key investment
                                                                                                      destination for FDI over the 2016-20
25%                                                           24%                                     period, with Egypt (1st), Morocco (4th) and
                                                                                                      Algeria (5th) among the top five recipients of
                                                                                                      FDI flows in Africa.24 Morocco and Egypt are
20%                                                                                                   expected to be the key focus of funds in the
                                                                                                      region, having been notable destinations
                                                                                                      for deal activity prior to COVID-19.25
15%
                                                                                 11%                  Despite the adverse impact of COVID-19
10%                                                                                                   on Morocco’s economy, respondents still
                                                                                                      consider the country to be a key focus
                                                                                                      for investment in the region. Egypt has
5%
                                                                                                      gradually established itself as a venture
                                                                                                      capital hub, attracting multiple early-stage
0%                                                                                                    deals, and is likely to remain an attractive
                                                                                                      destination for PE investment in the region.
                  Morocco

                                        Egypt

                                                              Tunisia

                                                                                 Algeria

Source: Deloitte Africa analysis based on PECS 2021 results
                                                                                                                                                    09
2021 Deloitte Africa Private Equity Confidence Survey

Southern Africa has been a key                      Figure 5. Countries in Southern Africa that funds aim to focus on over
investment destination for PE over the              the next 12 months
years, based on the number of deals over
the 2014-19 period. By value of deals, the          45%
region has been overtaken by both West                       42%
and North Africa.26 Similarly, it has also
                                                    40%
been the third-largest destination (20%) for
FDI in Africa, after North Africa (43%) and
West Africa (23%) over the 2016-20 period.27        35%

The focus of funds looking at Southern              30%
Africa is expected to remain concentrated
on South Africa, followed by Mozambique
and Botswana. South Africa and                      25%
Mozambique have also been key
destinations for FDI over the 2016-20               20%
period.28

                                                    15%
South Africa is the largest and most
diversified economy in the region, and                                       11%
                                                                                              10%
PE investors are expected to target                 10%                                                  8%         8%
quality, well-priced assets that become
available in a post-COVID-19 depressed                                                                                             5%            5%
                                                    5%
market environment. PE has proven to                                                                                                                                 3%                  3%                      3%
be an agile asset class in the region, with                                                                                                                                                                                           1%
PE funds being able to navigate their               0%
                                                              South Africa

                                                                             Mozambique

                                                                                              Botswana

                                                                                                          Namibia

                                                                                                                     Zambia

                                                                                                                                     Angola

                                                                                                                                                 Zimbabwe

                                                                                                                                                                     Madagascar

                                                                                                                                                                                         Malawi

                                                                                                                                                                                                                 Mauritius
portfolio companies effectively through the

                                                                                                                                                                                                                                      Eswatini
COVID-19 lockdowns and related economic
downturn. This is expected to continue
going forward, with PE expected to be a
key investment driver in the post-COVID-19          Source: Deloitte Africa analysis based on PECS 2021 results
pandemic economic recovery.

In West Africa, key investment countries            Figure 6. Countries in West Africa that funds aim to focus on over the next 12 months
are expected to be Ghana, Côte d’Ivoire,
Nigeria, and Senegal. These four countries
                                                    25%
represent the strongest economies relative
to other countries in the region, in terms                     21%
of economic performance. Furthermore,                                        20%
                                                    20%
these four economies are significantly
                                                                                              17%
more industrialised than other countries in                                                              16%
the region.                                         15%

West Africa has been a strategic
                                                    10%                                                             9%
investment destination for funds in recent
years, having been the top region for
PE investment by value over the 2014-                                                                                         5%
19 period. Deal activity (by value) has             5%
                                                                                                                                              3%
been largely in Nigeria, despite various                                                                                                                    2%                    2%              2%
macroeconomic, political, and security risks                                                                                                                                                                           1%                  1%
                                                    0%
in the country, with Ghana in second place.
                                                                    Ghana

                                                                              Côte d’Ivoire

                                                                                              Nigeria

                                                                                                         Senegal

                                                                                                                    Benin

                                                                                                                              Burkina Faso

                                                                                                                                              Togo

                                                                                                                                                            Guinea

                                                                                                                                                                                  Mali

                                                                                                                                                                                                  Sierra Leone

                                                                                                                                                                                                                         Cape Verde

                                                                                                                                                                                                                                           Liberia

Nigeria and Ghana both have also been key
recipients of FDI in the region.29

                                                    Source: Deloitte Africa analysis based on PECS 2021 results

10
2021 Deloitte Africa Private Equity Confidence Survey

Deloitte insights: Market approach
valuation post-COVID-19

T
        he COVID-19 pandemic has had a           annually. It is therefore critical that the       It may be wise to underweight the market
        major impact on capital markets’         following factors are considered when             approach and to rely more on the income
        volatility and share prices across       attempting to apply the market approach           approach with scenario analyses, as this
the globe. Market capitalisations reduced        for valuation purposes:                           method may articulate the uncertainty
significantly in a short period, but the                                                           in the earnings potential of the company
subsequent monetary and fiscal policy            • Ensure that the earnings base of the            and its potential range of value more
changes have helped return markets to              company is normalised to exclude                adequately.
pre-COVID-19 levels.                               any once-off or extraordinary items
                                                   related to the pandemic. The earnings
In the wake of this volatility, the Deloitte       metric should reflect a sustainable level
Africa Valuations team is often asked what         of profitability that the company could
the key considerations are with regards to         maintain into the future.
applying the valuation market approach,
                                                 • The reporting date of the company
given the observed market volatility
                                                   should be considered, as the most
that has been wrought by the COVID-19
                                                   recent and up-to-date information
pandemic. In performing a valuation based
                                                   relating to the comparable company
on the market approach and comparable
                                                   should be used in the valuation.
companies, information that is applied
needs to be carefully assessed, as the           • Industry multiples observed in 2020
answer is not as straightforward as it would       may be understated (in industries
appear.                                            where significant share price declines          Damien Jacquart
                                                   were observed) or overstated (in                Partner,
What needs to be considered is how                 industries where significant share              Financial Advisory,
valuation multiples are calculated, and how        price increases were observed), given           Deloitte Francophone Africa
the inputs of these valuation multiples have       that reported earnings at that point in
potentially been affected by the pandemic.         time may not have reflected the future
Valuation multiples express a ratio of             impact of the pandemic on the earnings
market value of the company (equity value          of the business.
or enterprise value, which is a function of
                                                 • The comparability of companies in
the share price times shares outstanding)
                                                   different geographies and subsectors
with a reported financial income statement
                                                   should be assessed in depth, as the
metric, such as earnings before interest,
                                                   pandemic did not uniformly impact all
taxes, depreciation, and amortisation
                                                   sectors of all countries across the world.
(EBITDA) or profit after tax (PAT).
                                                 • Forward-looking earnings and                    Mohsin Kahn
On the one hand, equity values are a               multiples may be volatile, given the            Partner,
forward-looking view of the business,              rapidly evolving situation. Economic            Valuations & Modelling Leader,
often informed by investor and industry            activity may be impacted by unexpected          Financial Advisory,
sentiment. On the other hand, a company’s          lockdowns due to possible virus                 Deloitte South Africa
reported financial information is a historical     mutations and the outcome of vaccine
figure that is reported quarterly or semi-         roll-outs.

                                                                                                                                                 11
2021 Deloitte Africa Private Equity Confidence Survey

Investment landscape
Figure 7. Expected PE activity by region over the next 12 months

80%
                                                                                     74%

70%
             65%                                                                                                        64%

60%                                               56%

50%
                                                           44%

40%

                      30%
30%                                                                                                                              27%
                                                                                              23%

20%

10%                                                                                                                                         9%
                                 4%                                                                     3%
                                                                       0%
0%
                   East Africa                          North Africa                    Southern Africa                       West Africa

Source: Deloitte Africa analysis based on PECS 2021 results                                Increase          Remain the same            Decrease
Note: Regional totals may not add to 100% due to rounding.

Overall perspective                                 of COVID-19. Strong market activity is            In Southern Africa, the “wait-and-see”
In line with the anticipated improvement            projected as transactions that were initiated     approach adopted by many PE firms during
in the economic climate, PE activity is             before the pandemic are completed and             the onset of the pandemic is expected to
expected to increase across all regions. Key        those that began during the pandemic begin        result in heightened PE activity in 2021
drivers supporting the investment case in           to pick up as economies reopen.                   and 2022. This is highlighted by 74% of
the continent include a young population                                                              respondents expecting PE activity to
driving productivity, rapid urbanisation,           Distressed PE acquisitions and possible           increase in the region.
and accelerated technology uptake.                  funding opportunities are likely to increase,
                                                    with companies expected to fundraise to           Funders and investment committees are
Furthermore, trading has commenced                  meet their working capital needs post-            requiring increased due diligence and
under the AfCFTA from 1 January 2021,               pandemic.                                         strong deal rationale to justify investments
which is likely to also positively impact                                                             in the current economic climate. However,
PE activity across the continent, as it is          In North Africa, respondents are split            investment strategies and targeted returns
expected to encourage greater capital               between an expected increase in activity          will require capital deployment. Therefore,
flows by reducing trade barriers.                   (56%) and activity remaining the same             increased competition in the market is
                                                    (44%). Deal activity is anticipated to target     expected as investors target quality assets
Regional insights                                   quality assets with strong cash flows;            at the right price.
Most respondents in East Africa (65%)               however, uncertainty around another wave
expect PE activity in the region to increase        of infections and consumer spending may           In West Africa investors have been
over the next 12 months. This is in line            result in PE firms adopting a “wait-and-see”      focusing on strategies to preserve existing
with the anticipated improvement in the             approach for new investments and deal             investments in the current adverse
economic climate, as governments ease               activity.                                         COVID-19 environment. The expected
measures instituted to curb the spread                                                                increase in PE activity is anticipated to be
                                                                                                      driven by the projected economic recovery
12                                                                                                    in 2021 and 2022.
2021 Deloitte Africa Private Equity Confidence Survey

Figure 8. Anticipated investments by region over the next 12 months

70%                                                                             69%
                                                                                                                   64%
              61%
60%

                                                        50%
50%

40%                                            38%

30%                                                                                                                         27%
                       26%                                                              26%

20%
                                  13%                               13%

10%                                                                                                                                    9%
                                                                                                   6%

0%
                    East Africa                      North Africa                  Southern Africa                       West Africa

Source: Deloitte Africa analysis based on PECS 2021 results                            Increase            Invest the same             Decrease
Note: Regional totals may not add to 100% due to rounding.

Overall perspective                              the expected improvement in economic             surprising that 69% of respondents expect
Prior to the pandemic, between 2014 and          climate and anticipated increase in PE           an increase in investment activity for the
2019, PE investment activity (number of          activity, as vaccination programmes take         region.
deals) was on an upward trend, yet the total     shape and economies begin to recover.
annual deal value was declining.30 A similar                                                      The anticipated increase in respondents’
trend was seen with other investment             In North Africa, investors are expected to       investments in West Africa is consistent
classes, where the number of FDI projects        invest the same over the next 12 months.         with economic growth expectations for the
invested in Africa annually rose, although       In order to maintain the same level of           region, which are expected to create an
total annual FDI in value terms declined         investment, countries have implemented           avenue for new investments.
between 2016 and 2019.31 This suggests           immediate investment policies such as
growing investor interest, but smaller           the new Egyptian banking law promoting
average investments.                             investments and financial stability in
                                                 Egypt.32
Looking forward, the results of the Deloitte
PECS suggest that investment activity is         In Southern Africa, PE firms have
expected to continue increasing, with lower      generally been conservative in deploying
average deal sizes beginning to be favoured      capital, both leading up to COVID-19 and
(refer to Figure 9 below).                       during the initial phase of the pandemic.
                                                 An improvement in the economic climate is
Regional insights                                key to supporting an increase in anticipated
Most respondents in East Africa (61%)            investments over the next 12 months.
expect an increase in PE investments             Given the expected improvement in
over the next 12 months. This aligns with        economic conditions for the region, it is not

                                                                                                                                                13
2021 Deloitte Africa Private Equity Confidence Survey

Figure 9. The average deal size expected by region over the next 12 months

80%
                                                 73%                                                              76%
              72%

70%

                                                                                   58%
60%

50%

40%

                                                                                             32%
30%                     28%                                27%

20%                                                                                                                        18%

                                                                                                      10%
10%                                                                                                                                   6%

                                   0%                                  0%
0%
                     East Africa                        North Africa                   Southern Africa                  West Africa

Source: Deloitte Africa analysis based on PECS 2021 results
2021 Deloitte Africa Private Equity Confidence Survey

Figure 10. Expected entry multiples on transactions by region over the next 12 months

60%
                                                        53%

50%                                                                                    48%
                                 43%

40%
                                                                                                                             45%

                                                                                                  30%              30%
30%          29%      29%                      27%
                                                                                                                                       25%
                                                                               21%
                                                                    20%
20%

10%

0%
                   East Africa                       North Africa                Southern Africa                         West Africa

Source: Deloitte Africa analysis based on PECS 2021 results                           Increase             Remain the same             Decrease
Note: Regional totals may not add to 100% due to rounding.

Overall perspective                              global market and higher discount rates as       of respondents (30%) expect multiples
The presence of more PE funds on                 investors are anticipated to be more risk        to decrease as there may potentially be
the ground in African regions and the            averse. The attractiveness of companies          distressed assets that offer the right
increase in the number of qualified African      will also be affected, as most of them are       investor an opportunity to acquire a
executives have made it easier to identify       reporting decreased earnings, as they            business with strong trading potential at
deals and to transact. However, this has         recover from the effects of the pandemic.        depressed prices.
increased competition and put pressure
on deal values and entry multiples. Based        In North Africa, most respondents (53%)          Entry multiples in West Africa are
on survey responses, entry multiples on          expect entry multiples to remain the same        expected to largely remain the same
transactions in North, Southern and West         over the next 12 months, as economic             over the next 12 months, as economic
Africa are expected to remain the same           conditions recover.                              conditions slowly recover and transaction
over the next 12 months.                                                                          activity resumes.
                                                 Pre-COVID-19, transaction multiples were
Regional insights                                increasing in Southern Africa as PE
In East Africa, most respondents (43%)           investors competed for quality assets in a
expect entry multiples on transactions to        growing mid-fund space. Looking forward,
decrease over the next 12 months. Some           respondents largely expect entry multiples
of the factors expected to affect asset          to remain the same (given the increases
prices include increased volatility in the       pre-COVID-19). However, a large portion

                                                                                                                                                15
2021 Deloitte Africa Private Equity Confidence Survey

Figure 11. Expected average lifecycle from initial investment to exit for investments made during the next 12 months

70%
                                                            67%
                                                                                                                                  63%

60%

50%                    48%                                                             48%
                                                                                                45%
             43%
40%                                                                                                                      37%

30%
                                                   25%

20%

                                 10%                                   8%
10%                                                                                                     6%

                                                                                                                                             0%
0%
                   East Africa                          North Africa                      Southern Africa                      West Africa

Source: Deloitte Africa analysis based on PECS 2021 results                        More than 7 years         5-7 years           Less than 5 years
Note: Regional totals may not add to 100% due to rounding.

Overall perspective                                 lifecycle to be more than seven years. PE
An average lifecycle of five to seven               professionals are expected to require
years from initial investment to exit is            a longer timeframe to control their
expected across all regions, except for             investments and manage exits to achieve
Southern Africa. In Southern Africa, most           required valuations.
respondents expect this to be more than
seven years.                                        In Southern Africa, 45% of respondents
                                                    expect the average lifecycle to be
Regional insights                                   between five and seven years, with 48% of
Most respondents in East Africa (48%)               respondents expecting timeframes of more
expect the holding period to range                  than seven years. Although the region is
between five and seven years, while                 likely to see positive economic growth and
43% expect the holding period to be                 increased investment activity, there are
greater than seven years. The region’s              headwinds to navigate, and investors will
average holding period has recently been            potentially need to hold onto investments
five years.37 As a result of the change in          for longer to achieve required returns.
economic growth forecasts and the impact
of COVID-19, it is expected that portfolio          Historically, the typical average investment
companies will take relatively longer to            lifecycle of PE investment in West Africa
generate required returns.                          has been at least five years.38 This is largely
                                                    expected to remain the same for the next
In North Africa, 67% of respondents                 12 months, with 63% of respondents
expect the average lifecycle to be                  expecting the average lifecycle to be five to
between five and seven years, with 25%              seven years.
of respondents expecting the average

16
2021 Deloitte Africa Private Equity Confidence Survey

Figure 12. Exits expected by region in the next 12 months

70%
                      62%
60%

                                                                                                                                   50%
50%
                                                         46%

40%                                                                                          39%
                                                                                                                          35%
                                                                                   33%
                                                31%
30%          29%
                                                                                                        27%
                                                                     23%

20%
                                                                                                                                              15%
                                 10%
10%

0%
                   East Africa                        North Africa                   Southern Africa                            West Africa

Source: Deloitte Africa analysis based on PECS 2021 results                       Increase                  Remain the same               Decrease
Note: Regional totals may not add to 100% due to rounding.

Overall perspective                              PE exits are expected to be muted over the          The economic recovery in West Africa
A total of 278 exits were recorded across        next 12 months as businesses recover from           is expected to result in the restoration
the continent over the 2014-19 period. The       the effects of the COVID-19 pandemic.               of investment activities, with exits in the
number of exits increased from 40 exits in                                                           region being influenced by typical factors
2014 to 50 exits in 2016, before dropping to     The majority of respondents in North                such as economic and portfolio company
45 in 2018 and again 45 in 2019.39 Based on      Africa (46%) are expecting exits to remain          performance.
responses, the number of exits is mostly         the same, although 23% of respondents
expected to remain the same over the             are expecting more difficulties for exits.
next 12 months across the four regions.          An immediate challenge that impacts on
This is largely expected as current adverse      exits is the logistical trouble with travel
economic conditions and COVID-19-related         restrictions, which complicates the ability
uncertainties impact transaction activity,       of potential investors to conduct the
valuations, and the timing of exits.             necessary due diligence.

Regional insights                                In Southern Africa, economic challenges
In East Africa, the poor performance of          that existed pre-COVID-19 were further
portfolio companies resulted in the level        exacerbated by the impact of COVID-19,
of exits being lower in 2020 than in 2019.40     resulting in a number of transactions
One of the biggest challenges that PE            being put on hold, as sellers and buyers
investors have faced in recent months has        struggled to find common ground on
been currency depreciation. Given that           valuations. Going forward, the level of exits
most funds are raised, invested, and need        will depend on the ability of transactions
to return capital to their investors in US       to close and investors to find quality assets
dollars, the depreciation of local currencies    at the right price, with suitable growth
impacts on portfolio performance. As such,       prospects.

                                                                                                                                                    17
2021 Deloitte Africa Private Equity Confidence Survey

Figure 13. Most dominant exit routes per region over the next 12 months

60%
                                                          54%
                                                                                           52%
50%                                                46%                                                               48%

          41%
40%                                                                                39%                                      38%
                  36%

30%
                          23%
20%
                                                                                                                                  14%

10%                                                                                                9%

                                   0%                              0%      0%                               0%                            0%
0%
                  East Africa                             North Africa                   Southern Africa                    West Africa

     Secondary sales to private equity             Sales to strategic investors       Partial exit via refinancing         IPOs

Source: Deloitte Africa analysis based on PECS 2021 results
Note: Regional totals may not add to 100% due to rounding.

Overall perspective                                 In North Africa, sales to strategic
Based on survey responses, sales to                 investors are expected to be the most
strategic investors and secondary sales to          favoured exit route. These have historically
PE are expected to be the favoured exit             generated high returns in North Africa.
routes for all regions. Initial public offerings
(IPOs) are not expected to be a favoured            In Southern Africa, the dominant exit
exit route in any region over the next              route is expected to be sales to strategic
12 months.                                          investors, followed by secondary sales to
                                                    PE. Strategic investors are expected to be
Regional insights                                   key drivers of projected investment activity
In East Africa, secondary sales to PE are           over the next 12 months, as the region
expected to be the dominant exit route              tries to recover from the adverse economic
for PE firms, followed by sales to strategic        climate and impact of COVID-19.
investors. This is likely as PE firms would
realise better valuations compared to               In West Africa, secondary sales to PE
IPOs. Capital markets in East Africa are            investors are expected to be the dominant
underdeveloped and have attracted only a            exit route, given the number of active PE
few listings in the recent past.                    market participants and their knowledge of
                                                    the market dynamics.

18
2021 Deloitte Africa Private Equity Confidence Survey

Deloitte insights: Providing growth
solutions to private enterprises

P
       rivately owned businesses are              platform growth), and portfolio exits
       the engine room of the African             (by identifying suitable buyers). This is
       economy. By diversifying operations        done by specialist teams with extensive
or expanding into new markets, privately          knowledge of M&A advisory, buy and sell-
held enterprises have been seeking                side due diligence, M&A tax, valuations,
options to grow their businesses across           and modelling, as well as advising on the
the continent, and will drive the continent’s     optimum funding structure that helps
future growth prospects.                          guide privately held entities, portfolio
                                                  companies and the PE funders through
Crucial parts of privately held enterprises’      complex transactions.
                                                                                                     Mabel Ndawula
growth strategies include, for example,
                                                                                                     Deloitte Private Africa Leader,
business continuity, which is key to any          A key challenge, however, is that databases
                                                                                                     Partner,
organisation’s success, and succession            of privately held enterprises do not exist
                                                                                                     Deloitte Uganda
planning. Attracting and retaining effective      in most of Africa, and many of these
senior management is vital to taking a            companies, often also very profitable and
business forward and developing its               fast-growing, fly largely under the radar.
expansion strategy.                               Although there are many opportunities for
                                                  PE, it often takes time and considerable
The effectiveness of management teams is          effort to identify suitable targets.
a particular area of focus for PE investors.
Deloitte experience has shown that                The economic challenges brought about
having an effective management team in            by the COVID-19 pandemic across the
place, along with the growth prospects            African continent will not only require
of the company and a well-structured              agile investors to navigate volatile and           Maik Tiemann
strategy, will ensure its success and make it     distressed environments, but also present          Associate Director,
attractive to PE investors.                       several investment opportunities. Given            Financial Advisory,
                                                  the proven track record of PE investors as         Deloitte South Africa
To achieve this, Deloitte Private works closely   being adaptable and resilient, the asset
with privately held enterprises, to develop       class has a key role to play in the post-
their corporate and business strategy,            COVID-19 recovery and rebuild.
advising their management teams, and
helping to drive the business and operating       In Africa, the need for a more inclusive and
model that will form part of their overall        sustainable development path provides
growth strategy.                                  numerous opportunities for investors to
                                                  generate adequate returns, in addition
Deloitte Private also advises on the              to making a long-lasting, meaningful
corporate as well as mergers and                  impact on millions of people through
acquisitions (M&A) strategy of private            the rebuilding of economies. Private
enterprises, supports PE investors and            enterprises have a key role to play in the
the management teams of portfolio                 rebuilding process by working more closely
companies with acquisitions and buy-              with alternative investment classes, such
side opportunities (by identifying the            as PE.
right targets for bolt-on acquisitions and

                                                                                                                                                   19
2021 Deloitte Africa Private Equity Confidence Survey

Fundraising environment
Figure 14. Expected changes in the regional fundraising environment over the next 12 months

60%                                                         56%

                                                                                             50%
50%
              45%
                        41%                                                                                                    41%
40%
                                                                                                                      36%

30%
                                                   25%                              26%              24%                                  23%

20%                                                                     19%
                                  14%

10%

0%
                    East Africa                          North Africa                  Southern Africa                      West Africa

Source: Deloitte Africa analysis based on PECS 2021 results                               Improve          Remain the same            Deteriorate
Note: Regional totals may not add to 100% due to rounding.

Overall perspective                                 (41%). Fundraising and fund due diligence       In Southern Africa, there was strong
The total funds raised since 2014                   processes were prolonged, given                 fundraising activity pre-COVID-19.
peaked in 2015, largely boosted by                  COVID-19 travel restrictions. As such,          Therefore, respondents are looking to drive
first-time contributions from various US            investors shifted their focus towards           the projected increase in PE activity mainly
and European institutional investors.               stabilising existing portfolios, thereby        with funds that have already been raised.
Fundraising then slumped in 2017 on                 reducing fundraising activity in 2020. As       The favourable economic outlook supports
account of dropping commodity prices, as            governments develop economic recovery           the expected continuation of fundraising
well as exchange rate volatility. Thanks to a       initiatives to focus on the removal of          activities, albeit that fundraising processes
rebound in oil prices and Africa’s improving        structural barriers for private-sector-         are anticipated to be prolonged and to
agricultural exports, total funds raised            led growth, trade liberalisation, and an        have stricter requirements.
recovered in 2019.41 Following the COVID-19         enabling environment for manufacturers
pandemic, the fundraising environment is            and exporters, East Africa is expected to       Almost half (41%) of the respondents
expected to improve or remain the same              see a recovery in fundraising activities.       in West Africa expect the fundraising
across all regions. This aligns with the                                                            environment to remain the same. This
projected improvement in the respective             In North Africa, most respondents expect        is largely as funds were not significantly
economic climates and anticipated increase          the fundraising environment to either           utilised over the past 12 months due to
in PE activity.                                     remain the same or improve over the next        reduced rates of investment in 2020.
                                                    12 months. This is in line with the expected
Regional insights                                   increase in PE activity and an improvement
In East Africa, respondents expect                  in economic climate over the next
either an improvement in the fundraising            12 months, demonstrating LPs’ confidence
environment (45%) or no change at all               in the long-term attractiveness of PE in
                                                    Africa.
20
2021 Deloitte Africa Private Equity Confidence Survey

Figure 15. Expected fundraising timelines by region over the next 12 months

70%
              61%
60%                                             56%                                                                      55%
                                                                                   53%

50%

40%
                                                         31%                                32%
30%
                       26%                                                                                                        27%

20%
                                                                                                       15%                                   18%
                                  13%                                13%
10%

0%
                    East Africa                       North Africa                    Southern Africa                          West Africa

Source: Deloitte Africa analysis based on PECS 2021 results                                 Increase               No impact              Decrease
Note: Regional totals may not add to 100% due to rounding.

Overall perspective                              In North Africa, fundraising timelines are          funding. Furthermore, fund managers are
Fundraising timelines are expected to            also expected to increase. The COVID-19             expected to require a more robust risk
increase across all four regions, with           crisis has raised several issues, including         management framework, which is likely to
the anticipated tightening of fundraising        lockdowns, travel restrictions, and liquidity       impact the typical timelines for fundraising
processes and related requirements.              problems that present obstacles to                  in the region.
                                                 fundraising efforts in the region.
Regional insights
East Africa’s fundraising timelines are          In Southern Africa, longer fundraising
expected to increase. The East African           timelines may be attributed to current
PE market largely depends on US                  adverse economic conditions, travel
dollar-based investors. Depreciation of          restrictions, delayed vaccine distribution,
currencies in the region due to the impact       and increased scrutiny by funders due to
of COVID-19, and the subsequent low US           heightened COVID-19-associated risks.
dollar-based returns, have seen revised
investment sentiment towards East                With the regional economy still in recovery
Africa. Consequently, some international         in West Africa, funders appear to be
institutional investors have exited the          more cautious in making funds available
region or have delayed investments. This         and are likely to undertake a rigorous
could affect fundraising initiatives over the    risk assessment before they can provide
next 12 months.

                                                                                                                                                   21
2021 Deloitte Africa Private Equity Confidence Survey

Figure 16. Preferred third-party sources of funding to be used by                                        Overall perspective
region in the next 12 months                                                                             DFIs have played and continue to play a
                                                                                                         key role in the PE industry. This includes
                                                                                                         driving awareness of the importance of
                                        8%                                                               private-sector development in Africa, as
                                         10%                                                             well as promoting investment facilitation
       Insurance                                                                                         frameworks.42
                                          10%
                                        7%
                                                                                                         DFIs are the largest third-party source
                                                                                                         of funding and are expected to continue
                      2%                                                                                 playing a leading role going forward, as
                     0%                                                                                  shared prosperity and inclusive growth are
     Corporates
                               6%                                                                        more important than ever, following the
                              5%                                                                         COVID-19 crisis. Based on responses, the
                                                                                                         preferred third-party source of funding to
                               6%                                                                        be used within the next 12 months across
                                        8%                                                               all regions is Governments/DFIs.
           Banks
                                              13%
                                                                                                         Regional insights
                              5%
                                                                                                         Respondents in East Africa expect to use
                                                                                                         Governments/DFIs as the preferred third-
                                                                                             35%         party source of funding. The significant
Governments/                                                                         31%                 DFI investment in the region is likely due
        DFIs                                                           24%                               to COVID-19-associated risks impacting on
                                                                                      32%                the availability of commercial capital, as
                                                                                                         well as DFIs looking to make countercyclical
                                                                  22%                                    investments that impact investment
    Pensions/                                                    21%                                     segments.
 Endowments                                                             24%
                                                                                                         In North Africa, respondents also consider
                                                                  22%
                                                                                                         Governments/DFIs to be the preferred
                                                                                                         third-party source of funding. Fund of funds
                                                    14%                                                  and Pensions/Endowments both represent
                                                                 21%                                     the second-most preferred source of
Fund of funds
                                                    14%                                                  funding.
                                                     15%
                                                                                                         In Southern Africa, Governments/DFIs
                                           12%                                                           and Pensions/Endowments are expected
          Private                        10%                                                             to be the largest sources of funding,
      individuals                                                                                        although the adverse economic climate
                                         10%
                                                                                                         and impact of COVID-19 may impact on
                                                    15%
                                                                                                         fundraising, particularly from Pensions/
                                                                                                         Endowments.
                    0%      5%          10%      15%       20%         25%     30%         35%     40%
                                                                                                         DFI funding in West Africa is expected
                                                                                                         from various developmental opportunities
     East Africa         North Africa         Southern Africa          West Africa                       that meet the investment objectives of DFIs
                                                                                                         that focus on the region.

Source: Deloitte Africa analysis based on PECS 2021 results
Note: Regional totals may not add to 100% due to rounding.

22
2021 Deloitte Africa Private Equity Confidence Survey

Figure 17. Geographical sources for raising capital for investment activities by region within the next 12 months

                                                                               26%
                                                                               26%
United States
                                                       16%
                                                                                         30%

                                                                19%
                                                     15%
 South Africa
                                                                                                                                           47%
                                                     15%

                  0%
                          4%
 North Africa
                  0%
                  0%

                                                       16%
                                                                19%
  Middle East
                                                     14%
                                                                20%

                                                                                         30%
                                                                                         30%
       Europe
                                                       16%
                                                                                      28%

                                       9%
                                7%
          Asia
                               6%
                                      8%

                 0%       5%         10%         15%          20%        25%          30%            35%          40%          45%          50%

Source: Deloitte Africa analysis based on PECS 2021 results            East Africa       North Africa          Southern Africa          West Africa
Note: Regional totals may not add to 100% due to rounding.

Overall perspective                              persist, the need for new funding sources          funding is expected to be sourced from
Key funding sources of PE in the past            will intensify.                                    Europe, followed by the US.
have been predominantly from outside of
Africa, including from the US and Europe.43      Regional insights                                  In Southern Africa the largest portion of
Although the US and various European             Most respondents in East Africa expect to          funding is expected to be sourced from
countries have also been among the top           raise capital from Europe and the US over          South Africa, followed by Europe and the
10 sources of FDI into Africa since 2016, it     the next 12 months. France has been a top          US. Longer-term economic fundamentals
is, in fact, emerging markets such as China,     M&A investor in Kenya in the 2020 financial        continue to attract funds to the region,
Russia and the United Arab Emirates (UAE)        year, while the United Kingdom (UK) had the        given the established South African markets
that have been the top three sources of FDI      highest deal value for inbound transactions        and possible higher returns available for
into Africa.44                                   due to the Direct Pay Online acquisition in        funders.
                                                 the same period.45 In addition, many East
Based on survey responses, the US and            African funds have historically raised funds       Countries within the West African region
Europe are expected to be the largest            from European-based DFIs.                          are beneficiaries of several developmental
sources of PE funding for most African                                                              projects that make funds available for PE
regions, except for Southern Africa, where       In North Africa, funding sources have              investment into the region. The projects
South Africa is expected to be the largest       been predominantly from outside the                are backed by the US government,
source of funding. As liquidity challenges       continent, and the largest portion of              countries in Europe, and various DFIs.
                                                                                                                                                  23
2021 Deloitte Africa Private Equity Confidence Survey

Deloitte insights: Data analytics
in PE deals

Data analytics is a sector-agnostic concept,            appropriate format, including focussed       tools can be built, tailored to PE investment
which means all M&A participants can                    data packs and visual dashboards,            policies. These tools can be enhanced by
leverage it to bolster their investment                 which will drive the “equity story” of the   machine learning to understand items
efforts and unlock value throughout                     portfolio company up for sale.               such as propensity to transact on both
the entire M&A lifecycle. PE firms stand                                                             the sell and buy side (therefore also using
                                                    • A well-designed deal-sourcing tool can
to benefit a great deal if data analytics                                                            data analytics to identify potential buyers
                                                      also help identify potential buyers.
and data science methods are applied                                                                 on exit). Packaging this using visualisation
effectively. There are three commonly                                                                software will give the investor a visual and
asked questions relating to data analytics          2) How can portfolio companies                   dynamic snapshot of deal activity and a
in PE deals:                                           benefit from concepts such as data            user-friendly interface.
                                                       analytics and data science?
1) How does data analytics fit into the
   PE investment lifecycle?                         To ensure that returns through
                                                    investments in portfolio companies are
Data analytics can be leveraged throughout          maximised, it is critical that value creation
the PE lifecycle, including, but not limited        is at the forefront of the investment
to, the following areas:                            thesis. Typically, value creation focuses
                                                    on areas such as revenue and margin,
• Advanced analytics and machine-                   cost management, effective budgeting,
  learning concepts can be used to                  capex optimisation, operating models, and
  build deal-sourcing tools to assist               working capital management.
  PE professionals to source the best
  investment opportunities based on                 Data analytics tools can be deployed in          Nisha Dharamlall
  multiple data sources and investment              each of these strategic areas and used           Transaction Services Leader,
  criteria.                                         effectively to transform the “office of the      Financial Advisory,
                                                    chief financial officer (CFO)” role, as well     Deloitte Africa
• The due diligence process can leverage
                                                    as improve management decision-making
  data-modelling techniques to handle
                                                    through data-driven reporting. Investment
  and process large amounts of deal data
                                                    in the right technology, coupled with having
  and use visualisation tools to present
                                                    a “digital” and “data” mindset, will set the
  key deal findings, both of which are
                                                    portfolio company on the right path to
  critical for negotiating a beneficial sale
                                                    unlock value for both management and the
  and purchase agreement.
                                                    PE investor.
• PE firms can unlock value in their
  portfolio companies through investing in          3) How can PE firms use data analytics
  and leveraging financial and operational             and data science to source deals?
                                                                                                     Dave Weir
  analytics to streamline processes and
                                                                                                     Manager,
  improve decision-making and risk                  Being able to maximise PE fund returns
                                                                                                     Financial Advisory,
  management.                                       starts with identifying the right investment
                                                                                                     Deloitte South Africa
                                                    opportunity. Increased access to third-
• When it is time to exit, a well-managed
                                                    party M&A data sources and internal
  and maintained data environment
                                                    deal data means that, with the right data
  will ensure sale readiness is achieved
                                                    analytics and data science expertise,
  efficiently. All financial and operational
                                                    robust target identification or deal-sourcing
  data points can be packaged into a deal-

24
25
Sector
     focus
     While consumer-driven industries have
     come to the fore in recent years, PE
     fund managers have diversified their
     strategies to invest across sectors such as
     Information Technology (IT), Renewable
     Energy, Infrastructure, and Real Estate.

     Over the 2014-19 period, the largest
     number of deals was in the Consumer,
     Industrials, Financial Services, as well as IT
     sectors, which all link with a growing middle
     class. The sectors with the largest deal
     sizes in the same period (thus attracting
     a larger share of the deal value) have
     included Communication Services, Utilities,
     Energy, and Materials.46

     Similar trends have been seen in terms
     of FDI inflows into the continent: the
     Energy and Resources sectors (Coal, Oil
     & Gas) attracted the biggest share of FDI
     by value over the five years to 2020. With
     an increase in digitalisation and the roll-
     out of payment solutions, the Financial
     Services sector has also been the most
     dynamic and attractive from an FDI project
     perspective. However, due to the lower
     required investment needed per project,
     the sector has only attracted a small share
     of investment inflows.47

     The COVID-19 pandemic has exposed the
     importance of and likely greater focus on
     certain key sectors, such as Healthcare and
     Pharmaceuticals, Education, and IT/TMT,
     with PE houses attracted to tech-enabled
     businesses that can sustain growth
     through the current and any future regional
     or global disruptions.

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2021 Deloitte Africa Private Equity Confidence Survey

Figure 18. Sectors of most interest in East Africa before and following the                   According to respondents, prior to the
COVID-19 pandemic (ranked)                                                                    pandemic, sectors of most interest in East
                                                                                              Africa included Education, Green Energy,
                                                                                              Healthcare and Pharmaceuticals, followed
                                 East Africa (pre-COVID-19)                                   by Infrastructure, Financial Services,
                                                                                              and TMT. An interest in Education, and
                           Education                                                  1
                                                                                              Healthcare and Pharmaceuticals was
          Green Energy/Clean Tech                                                     1       mainly driven by the increasing demand
                                                                                              for quality education and better health
  Healthcare and Pharmaceuticals                                                      1
                                                                                              services by the region’s growing middle
                       Infrastructure                                             4           class.

                   Financial Services                                             4           East Africa has proven its potential for
                                  TMT                                     6                   renewable energy (solar, wind, geothermal,
                                                                                              and hydro). This, together with the region’s
           Agriculture/Agribusiness                                       6                   limited access to energy, has spurred
                                                                                              interest in Green Energy. The Infrastructure
        Power/Oil and Gas/Utilities                                   8
                                                                                              sector has also seen growing interest. With
                Food and Beverages                                    8                       governments lacking adequate resources
                                                                                              to finance key projects, the private market
     Manufacturing and Industries                                     8
                                                                                              has shown a rising interest in infrastructure
                                Retail                      11                                funding.

                   Support Services                    12                                     Financial Services has been viewed
                                                                                              as a defensive sector, with attractive
          Travel/Hospitality/Leisure                   12
                                                                                              returns driven by good governance and
      Real Estate and Construction                     12                                     innovation around online and mobile
                                                                                              money platforms. TMT interest has been
                                                                                              driven mainly by increased innovations
                                                                                              and measures undertaken by various
                              East Africa (following COVID-19)                                governments. For example, in Ethiopia, the
                                                                                              liberalisation of sectors such as telecoms
                       Infrastructure                                                 1
                                                                                              has attracted growing interest from
          Green Energy/Clean Tech                                                     1       investors.

                                 TMT                                                  1       The COVID-19 pandemic has adversely
                   Financial Services                                             4           impacted the Entertainment, brick-and-
                                                                                              mortar Retail, Hospitality, Leisure, and
                           Education                                          5               Travel sectors. As such, most PE firms are
                                                                                              keen to diversify their investment targets
  Healthcare and Pharmaceuticals                                              5
                                                                                              in businesses that will be more resilient
           Agriculture/Agribusiness                                           5               in the post-COVID economy. A stronger
                                                                                              focus on Infrastructure, Green Energy, TMT,
        Power/Oil and Gas/Utilities                                   8
                                                                                              and Financial Services is expected going
                Food and Beverages                                    8                       forward.

                                Retail                           10

                   Support Services                         11

     Manufacturing and Industries                           11

          Travel/Hospitality/Leisure              13

      Real Estate and Construction                13

Source: Deloitte Africa analysis based on PECS 2021 results

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