Private Equity in emerging markets - down, but certainly not out...
February 28, 2014
Figures from the Emerging Markets Private Equity Association show that the total capital invested in emerging markets private equity deals during 2013 was $24bn, down from $26bn in 2012. The total number of emerging markets deals also fell, with 203 private equity deals for the first three quarters of 2013 compared with 252 deals in the same period in 2012. The decline in private equity activity has been primarily attributed to a return to (limited) growth in developed markets and slower headline growth in many of the BRIC economies. Increasingly competitive funding markets in many of the popular emerging market economies are also adding to the perception that buyouts may not achieve the same attractive returns as has been the case historically.
A positive outlook for 2014
Domestic private equity in emerging markets is generally in its infancy, although is beginning to become more established in many countries. In Africa for instance, private equity funds closed or closing amounted to $15bn in 2013. While international private equity firms historically saw emerging markets as a commodity play, this is now changing. We have seen larger PE firms such as Blackstone and KKR are busy investing in emerging market businesses, while Carlyle launched a $700m Sub-Saharan Africa fund in 2013.
Changing market strategies
Despite slower growth rates in many countries, there continues to be strong growth in the middle classes, driving increased consumerism. Key sectors of interest for private equity include consumer goods and services, hotels and tourism, infrastructure (including power, transport and telecoms), renewable energy and agriculture. There is also beginning to be a shift in mentality towards more value driven strategies and away from relying on strong market growth to drive returns.
Private equity in emerging markets may be slightly down, but the prospects look good. Contact us here to discuss this topic in more detail, or visit our Pioneer website for more information.