Africa whithers

Latest numbers show a drop in fundraising and early stage in particular, but improved returns, increased investment and this week’s mega fund suggest a brighter future for the continent.

Africa has rarely been hotter news than in recent weeks and not just because Madonna, the world’s most famous female singer, has pursued a controversial adoption of a child from Malawi.

Two new South African funds, Ethos and Sphere, which closed this week, have also made the headlines after raising more money than all funds together in 2005.

However, Ethos’s R5.5 billion buyout fund will only exacerbate the continent’s main trend of 2005.

An increased focus on later stage private equity investments in Africa has created an early stage-funding gap, according to the latest research by the African Venture Capital Association.

In 2005 almost two-thirds of funds closed were for later stage investment, compared to 40.1 percent of total funds raised in 2004.  Later stage funds raised $352.1 million (€275.7 million) last year.

Capital raised for early stage funds declined last year although the volume of early stage deals more than doubled in 2005 to 419 investments.

Overall private equity funds raised in Africa declined by 42.7 percent in 2005 to $557 million, with the highest proportion of funds raised in South Africa.

Private equity investments increased by 19 percent across Africa in 2005.  Nigeria recorded the highest level of investment activity outside South Africa, representing 50.9 percent of total activity, a 10.9 percent increase from 2004.

World Cup 2010 to boost South African private equity

South Africa looks set to dominate in 2006 as the build-up to the World Cup in 2010 gathers pace and attracts private equity money.

However, private equity investment in Africa fell by 27 percent in 2005 to $948.3 million.  South Africa recorded the highest investment activity level, accounting for 81.6 percent of the total volume of investments, while the total value of private equity investments in Africa increased by 50.4 percent.

Divestments rose by 6.3 percent in 2005, totalling $241.4 million.  The most common exit routes were sale to management, a secondary transaction or trade sale.

The transport sector attracted the highest level of investment in 2005, overtaking consumer-related industries in 2004.  Communications and IT followed.

Foreign participation in fundraising increased last year, with funds raised from Europe contributing 40.5 percent of total funds raised in 2005, 28.2 percent more than 2004.

Corporates were the second largest source of funding in 2005, contribution 8.9 percent of the total amount of funds raised in Africa, compared to 2004’s 6.4 percent.

Funds raised in South Africa dominated fundraising in Africa, raising $352.3 million, while Egypt came second at $155 million.

Including South Africa, the continent’s average deal size decreased from $1.8 million in 2004 to $1.2 million in 2005.

The value of buyout investments declined in 2005 from $892.6 million in 2004 to $567 million, while expansion investments increased from $196 million to $234.4 million.