WHILE total private equity investment in the hot Asian economies and Brazil is cooling due to frosty economic conditions, analysts say four years of "dry powder" can still be drawn on, with the African story appearing far more strongly on the radar screens of the big players.
Buoyant economic growth lifted investors’ enthusiasm for emerging markets and attracted vast sums of money for investments in China, India, Southeast Asia and Brazil over the past decade, with relative latecomer to the party sub-Saharan Africa hitting a five-year high of $1.6bn in investments last year.
Nervous capital markets and deal-dampening volatility led to four years of "false starts" in the developed world, but the industry has taken a sharp turn from uncertainty and worry to enthusiasm about the past year and optimism for the future, said this week’s Bain & Company’s 2014 Global Private Equity Report. It said while investment into the developing markets can keep deal makers "busy for years to come", changed macroeconomic conditions were seeing funds become more discerning.
A partner at Bain ’s London office, Graham Elton, said on Tuesday that after receiving a "disproportionate share of funds" after the 2009 financial crisis, emerging markets were now falling out of favour with global investors — but this did not apply to Africa.
"Fund positions are slow to move and they are finding it difficult to put money to work — it is very difficult to get exits, but this has more to do with Asian countries like China and India than Africa," he said.
The "clock was ticking" on money looking to find a home, Mr Elton said, as it would not sit idle forever, and money already in portfolios needed to be returned to investors at a quicker rate than it was being returned now.
"Some of these funds in countries like China and India are just not liquid, and they are forced to hold on longer," he said.
A partner in Bain’s Johannesburg office, Andrei Vorobyov, said on Tuesday that there was "definite interest" in making deals in Africa, but "Africa still needs to be proven".
He said it was no longer just South African funds competing any more, as a lot of global funds focused on emerging markets were coming into the market. This is forcing local players to adjust and adapt to the new environment as there was now "a lot of money chasing deals". Other African countries are also beginning to compete, according to Bain, with Nigerian funds trying to scoop up deals in West Africa, for example.
Deal activity in South Africa continues, with Trinitas Private Equity this week acquiring a 70% stake in the Auto Industrial Group, one of South Africa’s leading automotive component manufacturers. This is Trinitas’s fifth deal and takes the fund to almost 60% deployed.
"We’re right on track momentum-wise and we expect to be raising further funds in the short term," said Soteris Theorides, one of the founding partners of Trinitas Private Equity.