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Private equity multiples in Africa by sector

While there is notable activity across most sectors in Africa, value is attained by understanding the fundamentals within the industry and within the context of the macroeconomic environment. As such, the range of multiples across sectors and company sizes is relatively small.

The highest multiples have historically been seen in the consumer discretionary and consumer staples sectors. These sectors remain an attractive area for investment in Africa due to the prevalent, growing middle class, favourable demographics and growing disposable income across many African countries. It is seen that a premium is paid by investors to secure lucrative deals in these sectors, considering fierce competition among private equity houses. Also contributing to high multiples is high growth expectations and a decreased perception of risk relating to companies in the consumer sectors.

Healthcare has recently attracted high multiples. Demand for quality healthcare has increased across the continent, because of a growing population and rising disposable income.

The number and size of deals in the energy sector have increased significantly since 2015. Although not fetching the highest multiple, the average company size is considerably large. The highly regulated nature and cyclicality of this industry could be factors keeping prices lower.

Industrials remains another popular sector for investment, including the construction, engineering, transport, logistics, equipment and machinery industries. Investment is mostly in the light industrial sector with a focus on import substitution.

The information technology sector is characterised by smaller, earlier-stage companies. Yet, over 2016 this sector has experienced one of the largest increases in transaction activity and has realised deals at relatively high multiples. This supports the increasing adoption of tech in Africa, particularly in South Africa, Nigeria and Kenya.

 

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