Covid- 19 hits African private equity exits

Africa’s private equity industry has been partly shielded by the impact of Covid- 19 due to the continent’s relative lack of cases, the dominance of development finance institutions and its prior exposure to crises, but partners fear the pandemic’s impact on exits, according to a report.

T h e C o v i d - 1 9 Response Report by the Oxford Business Group and the African Private Equity and Venture Capital Association found that the Africafocused industry raised $ 1.1bn in funds and arranged 81 private equity deals totalling $ 700m in the first half of the year, with financials, IT, and consume r discretionary accounting for 49 percent of deals by volume. The pandemic s p a r k e d r e n ewe d interest in education and healthcare – the latter accounted for the largest share of deals by value at 24 percent.

The AVCA says that the prominent role of development finance institutions ( DFIs) in Africa’s private equity i n d u s t r y o f f e r e d resilience, with some DFIs introducing strategies to shield their investments from the pandemic and most investments already armed with strict environmental, social and governance criteria. Other DFIs have pooled their expertise into working groups to respond to the crisis.

Fur thermore, the AVCA says that African fund managers were better able to provide support and enable continuity at portfolio companies, having al ready dealt wi th challenges in Africa including shorter supply chains, more debt and less inventory.

“T h i s b u i l t - i n preparedness ensured that many portfolio companies were able to absorb some of the initial shocks to global supply chains and local demand,” says the report.

Neverthel e ss , the pandemic has exposed some of the African private equity industry’s inherent weaknesses. Weak exit environments, pol i t i c a l r i sk and currency fluctuations have all been exacerbated by the pandemic, and African governments are unlikely to offer financial assistance to distressed companies.

The uncertainty has led fund managers in subSaharan Africa to close their funds at smaller sizes during the pandemic, with some anticipating a reduction in capital inflows, particularly from European commercial investors and Asian institutional investors. An AVCA survey in

April found that 49% of respondents expected a 6- 12 month delay in capital deployment.

Over 90 percent of respondents listed the financial impact of the pandemic as their top concern, with over half concerned by a potential global recession and around 45 percent fearing a dip in consumer confidence.

That has impacted confidence around exits, with 57 percent saying that exit opportunities we re the g r e at e s t challenge in Africa in the small to medium term. 13 exits were recorded in the first half of 2020, compared to 25 in the first half of 2019 and 45 for the year. Exits are further complicated by travel restrictions, which are impeding the ability of investors to carry out due diligence, says the AVCA.

Nevertheless, several high- profile exits have been concluded this year, including the $ 288m acquisition of payments company DPO Group by Dubai- based Network International in July and the $ 500m acquisition of remittances firm Sendwave by World Remit i n Augus t , suggesting that investors re tain faith in the longer- term potential of compelling Africafocused companies.