African Private Capital Industry Faces Significant Slowdown for Second Year, Deal Values Drop by 53%

The African private capital industry has experienced a notable decline in deal activity for the second consecutive year, according to a report from the African Private Capital Association (AVCA). Year-to-date (YTD) data reveals a total of 287 deals, representing an 11% drop from the 324 deals recorded during the same period in 2023.

While the number of deals has declined modestly, investment values have suffered a more dramatic reduction. The first quarter of 2024 marked the worst-performing start to a year in five years. By the end of Q3 2024, only $1.9 billion had been invested across Africa, marking a sharp 53% decline compared to the same period in 2023. This figure also falls significantly below the five-year average of $4.2 billion for the first three quarters, making it the lowest YTD deal value since 2020.

Shift Toward Smaller Deals

A key finding of the report is a shift toward smaller deals, with transactions valued under $50 million dominating the market. For the first time in five years, smaller deals accounted for the majority of activity, representing 66% of all transactions. Larger deals, especially those above $50 million, saw a significant decline, contracting by 75% year-on-year (YoY).

Deals in the $50-99 million range were particularly affected, with a 92% drop, and no deals exceeding $250 million were reported. This shift highlights a strategic move by investors to focus on smaller, less risky investments amid economic uncertainty. The preference for smaller deals allows investors to optimize returns while managing risks in a volatile market.

Impact on Venture Capital and Private Equity

The report also details the impact of this downturn on venture capital, private equity, and infrastructure investments.

Venture capital, while still dominating the private capital landscape in Africa by making up 62% of deal volume and 52% of deal value, has not been immune to the slowdown. Venture capital deal volumes dropped by 21%, and deal values nearly halved, with a 49% YoY decline. Startups across the continent have responded by scaling back their growth initiatives and focusing on streamlining operations to cope with the tougher investment environment.

Private equity, however, showed some resilience in terms of deal volume, which increased by 28% YoY. This growth was driven primarily by more buyouts and growth capital deals. Despite the higher deal volume, the value of private equity investments fell sharply. Only $0.4 billion was deployed across private equity deals YTD, a 66% YoY decrease, marking the lowest investment values in seven years. Notably, deals below $10 million showed strength, with investment in this category growing from $35 million in 2023 to $55 million YTD in 2024.

Infrastructure Investments and Private Debt

The infrastructure investment sector also faced significant headwinds. Deal values in this sector plummeted by 68% YoY to just $0.2 billion. However, there were some positive highlights, such as a $150 million senior loan from Africa Finance Corporation to Kamoa Copper in the Democratic Republic of Congo, which provided a boost to the struggling sector.

On the other hand, private debt emerged as a bright spot in the private capital market. Deal values in this segment grew by 14% YoY, indicating a growing preference among investors for secure and flexible investments in the face of market volatility. While private debt values have not returned to the heights reached in 2022, the asset class has proven to be a crucial source of capital, particularly in the financial services sector. Lending companies, in particular, saw private debt deal values double compared to the same period in 2023.

Africa Remains an Attractive Investment Destination

Despite the downturn in deal activity and investment values across most asset classes, the AVCA report emphasizes that Africa continues to present attractive investment opportunities. The continent’s young population, growing digital economy, and untapped markets still offer compelling prospects for long-term investors. However, navigating the current economic challenges will require a more strategic and cautious approach to capital deployment.

Conclusion

The African private capital industry is facing its second year of contraction, with investment values falling sharply and deal volumes shifting toward smaller transactions. While venture capital and private equity have struggled to maintain past momentum, private debt has shown resilience amid market volatility. Moving forward, investors will likely focus on smaller, lower-risk deals as they adapt to the uncertain economic environment. Despite these challenges, Africa remains a promising region for private capital investment, offering numerous growth opportunities for those willing to navigate the current downturn.