With covid-19 hitting discretionary spending, the financial sector has overtaken the consumer discretionary segment to claim the largest share of private equity deal volume in Africa, at 16 percent in 2015-20, according to African Private Equity and Venture Capital Association data. While the financial sector attracted 21 percent of total deal volume in 2020 alone, 70 percent of these deals were in the fintech space.
“The flurry of innovation within the fintech industry and the sheer scope of the market opportunity presents a significant opportunity for private equity and venture capital investors,” says Alexia Alexandropoulou, research manager at AVCA.
And it is not just in the financial industry that tech enablement is catching investor attention – healthtech represented 45 percent of investments in Africa’s healthcare sector in 2020. Looking across all sectors, investments in technology-enabled companies accounted for 55 percent of total deal volume last year.
“In acknowledgement of the catalytic role technology and digitalisation can play in enabling the continent to ‘leapfrog’ into modernity, investors are increasingly seeking companies and business models that harness the power of technology to transform traditional industries,” says Alexandropoulou.
“Afro-entrepreneurs continued to innovate throughout the covid-19 pandemic, leveraging technology in their adaptation efforts.”
When AVCA polled LPs and GPs on the most attractive sectors for private equity investment as part of its 2021 industry survey, healthcare and technology ranked in the top three among both groups.
Growing interest in these sectors is underpinned by long-running trends – opportunities for private investment to help meet the continent’s healthcare needs and a focus on building out digital infrastructure to accelerate digitalisation – alongside more recent pandemic-linked developments.
“As covid-19 has highlighted healthcare delivery gaps and opportunities in this pandemic-resistant sector, investors have doubled down on healthcare deals,” says Sabrina Katz, manager of research at the Global Private Capital Association.
And while Katz notes that venture investment has been pouring into start-ups in emerging tech hubs, particularly in cities such as Cairo, Lagos, Nairobi, Cape Town and Johannesburg, she points out that many alternative asset strategies are looking to tech to both generate returns and make an impact.
“Private equity, private credit and infrastructure fund managers are focusing on telecommunications and data centre opportunities, as well as the digitalisation of their more traditional brick-and-mortar portfolio companies to drive performance,” says Katz. “While return prospects are strong, the continent also represents an outsized opportunity for investors interested in maximising the positive social and environmental impact of their capital commitments.”