The last few years have seen a dramatic shift in investment in the sector. Asoko’s Africa Transactions Database has recorded more than 100 transactions in the sector since 2015, covering both goods and services. Data from the Africa Venture Capital Association, meanwhile, shows that sector taking a growing share of the overall value of transactions on the continent, from 4% in 2018 to 12% in 2019 and 24% in the first half of 2020, the biggest share of the private equity (PE) pie over this period. The next decade is expected to see continued growth in healthcare investment, as increasing demand generates high returns.
Even before the pandemic, healthcare attracted African private equity investors because of its favorable rates of return and exit opportunities. Considering Africa’s 1.3 billion people and growing middle class consumer base, consumer-oriented sectors are more broadly key areas for investment.
Consumer-focused industries offer the highest internal rate of return, according to the IFC, with healthcare coming in fourth at 9.6% behind telecommunications, IT and consumer staples.
The effect of Covid-19
Covid-19 has drawn more attention to these industries, which have been the most resilient in the aftermath of the crisis. Speaking to Asoko earlier this year, Abiola Ojo Osagie, senior partner at AfricInvest, one of the continent’s most active private equity firms, explained the shift in focus necessitated by the pandemic: “We have had to rethink the way we deploy capital because it was no longer “as usual”. Some sectors have been hit hard, but others have benefited. Consumer-oriented industries have been resilient and defensive. Even though consumer spending has fallen, some of those with large markets are still doing well. “
This may partly explain why several large-scale healthcare investments were made in 2020 while deals in other sectors were delayed or canceled.
Notable deals included the participation of SPE Capital Partners in the pharmaceutical activities of the Saham group in Morocco, the investment of Rand Merchant Investment and Endeavor in the health technology platform Guidepost in South Africa, and the exit of AfricInvest from Polymedic in Morocco for the benefit of NBK Capital Partners and Foursan Capital Partners. Mediterrania Capital, Zoscales Partners and Oasis Capital also health agreements inked in 2020 covering North, East and West Africa.
North Africa has been a hot spot for healthcare deals, both in the pharmaceutical space where the more developed industrial base of the sub-region offers more opportunities, and in the service segment where the large consumer segments of the middle and upper classes offer a market ready for the provision of care. In sub-Saharan Africa, healthcare arrangements have been relatively widespread, including notable investments in Central Africa and concentrations in major markets, in line with general investment trends.
The exit potential in the health sector is also reasonably strong, especially given the illiquidity of African markets. Asoko has recorded eight outings in the sector since 2015. North Africa dominated this activity, with three quarters of exits in the sub-region, including the IPO of Unimed in Tunisia in 2016.
At the end of the line
Expanding access to quality health services and increasing national pharmaceutical manufacturing capacities will continue to dominate the health sector development agenda in Africa, and investments should follow to support these goals. .
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Traditional investments in bricks and mortar are needed on both fronts, but a growing niche of innovative and technological services will play an increasingly important role in the way health care is delivered in Africa and thus attract a growing share of investment. Approximately 10% of transactions recorded by Asoko in the first quarter of 2015-2021 were in the health technology arena, and we expect these innovations to continue to enjoy the support of the investment community as they develop. that these companies mature and develop.
Rob Withagen is Co-Founder and CEO of Asoko Insight, Africa’s leading data and business engagement platform, providing global investors, multinationals and development institutions with the most effective route to discover, shortlist and engage their target universe of African companies. Learn more at www.asokoinsight.com.