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EMPEA data finds private capital investment declines in 1H2016

The Emerging Markets Private Equity Association released the statistics for private capital investment in the first half of the year last week. The data show an overall decline in investment in the regions, a result of what the industry body calls “sluggish activity in China and other larger markets.” Africa was not immune either, with both the MENA region and Sub-Saharan African region posting fundraising and investment declines.

Overall, fund managers raised $15.1 billion and invested $13.3 billion in emerging markets, which represents a 33% and 20% decline respectively year over year. Funds investing in the MENA region raised $420 million in the first half of the year, and deployed $563 million in the region, down 21% and 14% on the same period last year. Following record fundraising in 2014 and 2105, funds targeting opportunities in the Sub-Saharan region are in deployment phase which resulted in only $725 million being raised during the first half of the year for opportunities in the region, a 75% fall from the prior year. Investment levels held up better though, with capital invested in the region declining from $652 million in the first half of 2015 to $584 million in the first half of this year, while deal count was on par.

Similar to the slowdowns seen in other regions due to the market conditions of regional leaders, capital invested in South Africa declined 59%, year-over-year. Deal count increased slightly in South Africa and moved from 11 to ten in Nigeria, the region’s other anchor market. While too soon to call a turn, the deal was an encouraging sign of investor confidence in the market.

Mirroring the pattern experienced in other EM regions, the number of deals completed in the consumer services and consumer goods sectors declined in Sub-Saharan Africa in the first half of 2016. Financials led all other sectors in deals completed in the region with a total of ten, while the power sector also retained the favor of fund managers

Noting an upside to the data, EMPEA’s Director of Research Jeff Schlapinski said, “Many of the GPs in Emerging Asia and Sub-Saharan Africa, as well as Latin America, who raised record funds in 2014 and 2015 may have the opportunity to deploy capital at more favorable terms and in more attractive opportunities than in the recent past, given some of the downward pressure on currencies witnessed over the past 18 months and tighter financing conditions now prevalent in many emerging markets.”

The industry association reports that while it is too soon to call a turn in the market, a number of deals give encouraging signs. Two mezzanine funds raised by Gulf Capital and NBK Capital Partners accounted for 79% of the capital raised for MENA-focused funds, suggesting that limited partners continue to pursue alternatives to traditional growth equity as a means of accessing opportunities in the region. While oil and gas deal flow across emerging markets has been limited in the last 18 months, The Carlyle Group’s US$500 million equity commitment to Tunisia-focused Mazarine Energy represented a vote of confidence in a sector that has been battered by low energy prices and financial distress for small- and mid-size operating companies and platforms. And as Nigeria experienced uncertainty over the future value of its currency, the third quarter opened with Nigeria-based Beloxxi receiving an US$80 million investment from African Capital Alliance, 8 Miles and DEG.

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