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2023 Annual - (released February 2024)

SA's quarterly Private Equity & Venture Capital magazine

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From the Editor’s desk

Michael Avery

While there is no crystal ball for predicting how long US inflation will stay elevated above the US Federal Reserve’s 2% target, consensus at the start of 2024 appears to be that interest rates will stay higher for longer, as the central bank aims to keep rising prices in check. Like most macro developments, the impact of interest-rate changes tends to hit public markets first and flow through to private markets over time. The direct and indirect impacts of higher interest rates on the primary private equity strategies of buyout, venture capital, growth equity, secondaries and fund of funds is still to be felt.

With fewer firms able to absorb the costs of increased debt, the number of buyout transactions may decrease, restricting investor options.

Buyout managers that have depended on leverage to create profits may suffer losses in a higher-rate, slower-growth environment. Businesses that incurred large debt in a leveraged buyout may struggle to service it, resulting in a partial or whole loss of investment.

Higher interest rates have slowed deal activity and caused revisions in transaction loan-to-value ratios. More moderate transaction pace may reduce the number of financial or strategic acquisitions, reducing exit alternatives.

Venture capital and growth equity funds seldom use leverage to finance their investments; therefore, they are less likely to face the issues associated with direct interest rate risk. They do, however, face indirect consequences, chiefly from fluctuating values.

Overall, today’s higher interest rates result in steeper discount rates and, hence, lower values. This raises the value risk for firms obtaining additional rounds of financing or considering an initial public offering. On the other hand, lower valuations frequently benefit venture capital and growth equity managers by allowing them to deploy fresh capital.  

In a nutshell, private equity looks set to face another extremely tough year in 2024.

 

 

The calibre of the finalists for the prestigious Private Equity Deal of the Year Award is a testament to the nuanced strategies employed by leading private equity firms in the region, and the increasing appetite for foreign acquirers to participate in the growth of the continent. The shortlist is an example of the essential elements that define a compelling and successful private equity transaction.

From the meticulous due diligence that precedes an acquisition to the strategic orchestration of exits, these deals showcase the ways in which founders and their general partners navigate the challenges unique to the African market. We shine a spotlight on industry expertise, the creation of value plans, and the collaborative synergy between private equity firms and local stakeholders, set against a backdrop of the rich tapestry of sub-Saharan Africa, where forging partnerships and understanding regional idiosyncrasies are paramount to success.

As Catalyst magazine stands at the vanguard of our industry to champion the recognition of excellence, we invite our readers to embark on an immersive journey into the intricacies of the private equity deals shaping Africa’s future.

 

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