African private capital markets experienced a record-high volume of deals in 2022. As a result, deal volumes in the region recorded a remarkable 46% year-on-year growth, and venture capital was the most active asset class, accounting for 74% of the total private capital deal volume and over half of private capital deal value, says private investment organisation the African Private Capital Association (AVCA).

The 2022 AVCA 'African Private Capital Activity' report showed that 626 deals took place during the year, which is a favourable increase amid broader global trends where deal volumes declined by 15% and value retreated by 26% in line with growing economic uncertainty into the second half of the year.

Africa experienced growth in the number of deals closed and capital invested. In 2022, $7.6-billion of private capital was invested, marking 3% year-on-year growth in deal values across the continent throughout 2022. This activity was driven by record growth in mid-market, or $10-million to $49-million, and larger-sized, $50-million to $100-million, deals.

Further, catalysed by venture capital deal flows, 2022 attracted the second-highest private capital investment over the last decade. However, while the fundraising value in 2022 experienced a 54% year-on-year decrease, more funds raised capital in 2022 than the year before. Much of this activity was led by capital raises between $100-million and $250-million, AVCA says.

Private and venture debt has emerged as an important source of inflows and venture capital continues to be a key driver of private capital, it adds.

Venture capital as the most active asset class reflects Africa’s changing demography. As a younger, more technology-oriented population drives interest in disruptive sectors, investments in technology secured the largest part of all investments recorded last year on the continent, it notes.

Further, according to the report, regulatory reforms involving greater protection of intellectual property rights and removing barriers to accessing funding sparked innovation in the start-up ecosystem, boosting investor confidence.

“This has encouraged more investment into industries integrating technology into their services, such as health technology, which is trending upward,” it highlights.

Meanwhile, private equity activity in Africa experienced a resurgence, with a 24% year-on-year increase in the number of deals, and a 31% year-on-year increase in the value of those deals. Private debt, which is an asset class offering diversification and investment protection during periods of economic volatility, attracted significant interest in 2022, with activity in the asset class across Africa growing 7.2 times year-on-year.

Investors continue committing to familiar regions and sectors. West Africa witnessed the most private capital deals on the continent, spearheaded by Nigeria, with more than half of the deals in the region concluded in Africa’s largest economy, AVCA points out.

The growth of private equity in South Africa, which is the continent’s most industrialised economy, reversed years of decline in investments in the wider Southern African region.

“Last year saw a surge of activity in the region boosted by growth in deal values increasing across private equity and infrastructure,” the organisation highlights.

Further, investment activity in North Africa continued to gain traction and noted a 52% year-on-year increase in deal volume in 2022, while the deal value in 2022 near-doubled the investment value recorded in the previous year.

East Africa also experienced a rise, with a 71% increase in deal volume and a 4-times increase in deal value, marking its highest-grossing year in a decade, AVCA points out.

Multi-region investments accounted for the largest deal volume with investors channelling 37% of the total value of investments into portfolio companies with operations in more than one African economy.

Additionally, the financials sector has benefited from this borderless approach. The sector’s prominence across private capital deal volume at 29% and value at 32% made it the most attractive sector again, a trend expected to continue, the organisation says.

“Consumer discretionary services, holding the second position, have been lifted by growing interest in the education, hospitality and retail sectors,” AVCA's report shows.

Meanwhile, 2022 marked a record number of successful exits, with 82 exits spread across all sub-regions. The 2.3 times year-on-year increase in exits across Africa, dominated by the financial sector, follows a bottleneck of delayed exits post-Covid-19.

In 2022, private capital fund managers prioritised asset disposal, the majority of which occurred in North Africa. Trade sales comprised nearly half of all exits, with private equity and financial buyers accounting for nearly a quarter. Exits through initial public offerings and capital markets also marked a record high, AVCA says.

“In the face of highly challenging global economic conditions, our industry saw an impressive number of exits - the most in history. The growing diversity of asset classes in the private capital ecosystem unlocks broader investment opportunities across exciting geographies and represents a marketplace finding more solutions in response to our transforming economy,” says AVCA CEO Abi Mustapha-Maduakor.

“We are delighted to see strong performance in venture capital and growth in private equity and private debt. As our industry matures, AVCA’s metrics mark the evolution. We look forward to building on our organisation’s role as an enabler of growth and investment,” she adds.