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London - Volatile currencies and weaker commodity prices are keeping private equity investors focused on sub-Saharan Africa on the sidelines even though buyout firms have record amounts of cash to spend on acquisitions.
“There’s been a dislocation in the market,” said Marlon Chigwende, manager of Carlyle Group LP’s $698m African fund.
“The dollar has appreciated strongly against a lot of African currencies so it’s had the effect of slowing down deal activity.”
Private-equity companies amassed $4.3bn for investment opportunities on the continent last year, the most since at least 2010, when the London-based African Private Equity and Venture Capital Association began compiling the data. Now though buyers are taking a wait-and-see approach from South Africa to Nigeria to avoid writing down assets should currencies devalue further.
Highest deal value
At least 17 of 23 African currencies tracked by Bloomberg have weakened against the dollar over the past 12 months, with the exchange rates of Angola, Zambia, Mozambique, Nigeria and Malawi declining more than 25%. Sellers are holding on for better valuations in the hope commodity prices will rebound and growth will accelerate.
The number of announced private-equity deals in sub-Saharan Africa has dropped to 29 so far this quarter, with transactions worth $760m, compared to 37 transactions worth $6.1bn in the second-quarter of 2015, which marked the highest deal value on record.
“I don’t know how long it will take to pick up,” Chigwende said. “The market needs to settle down. We’re definitely seeing things improving slowly, but it will take a bit of time.”
Investor sentiment toward the world’s poorest continent has soured as a commodity-price rout and a drought slowed economic expansion. The International Monetary Fund in April lowered its 2016 growth forecast for sub-Saharan Africa by 1 percentage point to 3% from 3.4 percent in 2015, which was the lowest level in 15 years.
