Volatile currencies keep investors at bay
Volatile currencies and weaker commodity prices are keeping private equity investors focused on sub-Saharan Africa on the sidelines, even though buyout firms have record amounts of cash to spend on acquisitions.
“There’s been a dislocation in the market,” said Marlon Chigwende, manager of Carlyle Group’s $698 million (R10.4 billion) African fund.
“The dollar has appreciated strongly against a lot of African currencies, so it’s had the effect of slowing down deal activity,” he said.
Private equity companies amassed $4.3 billion for investment opportunities on the continent last year, the most since at least 2010, when the London-based African Private Equity and Venture Capital Association began compiling the data.
Now buyers are taking a waitand-see approach from South Africa to Nigeria to avoid writing down assets should currencies devalue further.
At least 17 of 23 African currencies tracked by Bloomberg have weakened against the dollar over the past 12 months, with the exchange rates of Angola, Zambia, Mozambique, Nigeria and Malawi declining more than 25%.
Sellers are holding on for better valuations in the hopes that commodity prices will rebound and that growth will accelerate.
The number of announced private-equity deals in sub-Saharan Africa has dropped to 29 so far this quarter, with transactions worth $760 million, compared with 37 transactions worth $6.1 billion in the second quarter of 2015, which marked the highest deal value on record, according to data compiled by Bloomberg.