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Private Equity deals to rise on cheaper valuations
I&M Burbidge analysis shows that the total number of transactions in the region fell to 122 from 131 in 2023, primarily due to a decline in PE and DFI investments amid elevated global interest rates, inflationary pressures, and geopolitical uncertainty.
The volume of investments into East Africa by private equity (PE), venture capital and development finance institutions (DFIs) is tipped to grow in 2025, on account of favourable valuations and difficulties by businesses to access bank loans because of high cost of credit.
In an overview of the East African deals landscape, advisory firm I&M Burbidge Capital says that mergers and acquisitions should also go up in the period, due to an influx of foreign capital with the lowering of interest rates in developed economies.
Economic challenges facing businesses—including lingering effects of the Covid-19 pandemic— have encouraged mergers and acquisitions, the company said.
In Kenya, which hosts the bulk of regional deals, the cost of bank credit was elevated in 2024 as the Central bank raised its base rate, to tame inflation and an elevated exchange rate. Banks also lent cautiously due to high volumes of non-performing loans on their balance sheets.
The regulator however started easing its policy stance from the last quarter of 2024, to revive private sector lending, which contracted by 1.4 percent on an annual basis in December.
“On the demand side, softened valuation metrics create attractive entry points for investors. Tightening commercial credit due to government crowding out of the private sector, alongside high yields on government debt, positions equity financing as a vital tool for businesses navigating constrained credit markets,” said I&M Burbidge in its 2024 annual East Africa financial review.
“Low margin and low growth sectors, such as fast moving consumer goods distribution, printing and packaging, and oil and gas, are primed for strategic merger and acquisition activity as companies seek operational efficiency and competitive positioning.”
An uptick of deals should therefore result in a reversal of the dip in activity that was seen last year, compared to 2023.
I&M Burbidge analysis shows that the total number of transactions in the region fell to 122 from 131 in 2023, primarily due to a decline in PE and DFI investments amid elevated global interest rates, inflationary pressures, and geopolitical uncertainty.
At the same time, the overall median deal value declined by 6.7 percent to $9.8 million (Sh1.27 billion) from $10.5 million (Sh1.36 billion) in 2023.
The lower ticket sizes reflected a rise in prominence of venture capital transactions, which normally target smaller businesses compared to PE and DFI investors.
“This trend reflects the impact of tighter global financial conditions and increased risk aversion, particularly among larger investors targeting mature companies in the region,” said I&M Burbidge.
The company also expects Kenya to continue hosting the bulk of the region’s deals, despite other countries such as Tanzania and Uganda presenting a more compelling case for investments due to availability of natural resources including oil.
In 2024, Kenya accounted for 64.8 percent of the region’s deals with a count of 79, followed by Uganda with 14 transactions, Rwanda at 12, Tanzania with 10 and Ethiopia with seven.
In 2023, Kenya had accounted for 69.5 percent of the total deals with 91 transactions, ahead of Uganda’s 15, Tanzania and Rwanda with nine each and Ethiopia with seven transactions.
Nairobi’s status as the region’s financial hub has over the years seen it preferred by the foreign investors as a base for cross border investments targeting the region.
