AFRICAN AGRICULTURE SECTOR CONTINUES TO DRAW HIGH INTEREST FROM INVESTORS

African agriculture sector continues to draw high interest from investors African digital deal origination and processing platform Orbitt provides readers with an overview of investor behaviour based on enquiries made through its platform.

The trade and investment landscape in Africa has continued to draw interest from lenders, particularly in West Africa, with notable changes in origination strategies.

In Q1 2021, Orbitt reported a 26percent increase in the number of unique enquiries from lenders originating funding opportunities when compared with the same period in 2020. Some lenders have seemingly decided to focus more on particular regions (and in some cases, individual countries) citing “due diligence processes being disrupted due to travel restrictions” as a main reason, and “risk mitigation strategies” as the second most common reason.

These have prompted lenders to focus on regions and/or countries where they have representative offices or a deep and reliable network. Agriculture remains the sector with the most interest, present in almost 70percent of investor mandates. Financial services and manufacturing (including FMCG) are also quite prominent, being flagged as sectors of interest in 64percent and 44percent of investor mandates respectively. Two hundred and thirty-one unique lender enquiries were recorded in Q1 2021. Of these, 58percent of the companies are either headquartered in West Africa or have their main operations in West Africa; 17percent are based in East Africa and 16percent are based in Southern Africa. Only 5percent of these companies have cross regional operations, compared to the 14percent recorded in Q1 of 2020 (pre-pandemic). A considerable portion of the lender enquiries included a working capital component in the proposed transaction structure (35percent). Supply chain finance and asset financing components were also notably present in discussions (34percent and 30percent respectively). This quarter, the average ticket size was recorded as $12m, an increase from the $10m average recorded in the same time period for 2020. Twenty percent of the companies receiving enquiries from lenders reported annual revenues between $100m and $250m, and a further 13percent reported annual revenues of between $250m and $500m, showing lender appetite for the larger companies. However, a considerable amount of enquiries were received by companies reporting annual revenues of between $1m and $5m – particularly from the more impact-focused lenders.

The Orbitt perspective

Africa-focused lenders may have adjusted their origination strategies this year, with international lenders working around travel restrictions and disruptions to due diligence processes, but activity on the continent continues to increase. Lenders are considering larger transactions and employing additional credit enhancements to mitigate perceived risks in transactions.