PE activity seen eclipsing mergers and acquisitions

Capital markets

In PE activity, mergers and acquisitions have been dwarfed

Wednesday March 10, 2021

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Guests at a private equity and venture capital conference in Nairobi in April 2019. PHOTO | DIANA NGILA | NMG

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BY CHARLES MWANIKI
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Summary

  • Consulting firm I&M Burbidge Capital said in a forecast report that increasing liquidity from PE companies, mostly development capital funds, will drive the segment where the number of deals rose from 69 in 2019 to 73 last year.
  • Corporations have also turned to PE financing because of the difficulty in obtaining credit from risk averse banks and to avoid the added control that comes from raising money through the capital markets.

Private equity investing is expected to dominate corporate affairs in East Africa this year as companies seek new capital to support the Covid recovery and outperform mergers and acquisitions.

Consulting firm I&M Burbidge Capital said in a forecast report that increasing liquidity from PE companies, mostly development capital funds, will drive the segment where the number of deals rose from 69 in 2019 to 73 last year.

Corporations have also turned to PE financing because of the difficulty in obtaining credit from risk averse banks and to avoid the added control that comes from raising money through the capital markets.

“We anticipate PE activities will remain robust in 2021 due to the pandemic-starved demand for capital from local businesses, which goes well with the increased stock of development capital available for investment,” the company said in its annual financial overview for 2020.

“In the short term, we expect mergers and acquisitions to be subdued as companies recover from the effects of the Covid-19 pandemic. This could continue in the medium term, especially for transactions driven by foreign trade, if the structural challenges to doing business are not addressed. “

There were 25 mergers and acquisitions last year, up from 30 in 2019 and 56 in 2018.

I&M Burbidge also blamed political and political challenges for reducing mergers and acquisitions in the region in recent years.

In Kenya, which accounts for the lion’s share of regional business, the recently removed loan interest rate cap, political unrest and the collapse of three banks and major retailers over the past five years have shattered investor confidence.

The company also cited political challenges plaguing companies in Tanzania and Ethiopia’s tight exchange controls as daunting to invest.

“With much of the merger and acquisition activity in the region being driven by foreign trade actors, these challenges have made the region less attractive as a destination for inorganic expansion,” the company said in the report.

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