Regional and Pan-African private equity firms continue to invest in North Africa despite the recent economic and political events that have occurred in the region, according to Ponmile Osibo, Research Analyst at African Private Equity and Venture Capital Association (AVCA).

“Political uncertainty in the region has had an impact on foreign institutional investor interest in the region, although many are re-evaluating opportunities across the region,” said Osibo.

“The majority of the PE capital that is targeting North Africa is from Pan-African funds. However, there are also single-country and regional PE firms – mostly targeting SMEs – that are raising and deploying capital in North Africa,” he told Africa Global Funds.

According to the recent AVCA’s Spotlight on North Africa Private Equity report, North Africa private equity (PE) deal activity has remained relatively stable with the region retaining a 15% share of PE deal volume and value in Africa from 2007-14.

The research reported 156 PE deals in North Africa from 2007-2014, carrying a reported value of $5.3bn and a median deal size of $10mn.

“Our research shows over 46 funds* operating in the region. (*represents African PE funds with a final close in the period 2007 – June 2015, and have invested in North Africa),” said Osibo.

Morocco, Egypt and Tunisia attracted the lion’s share of North African deals, accounting for almost 90% of all deals in the region by volume and value, with Morocco taking the single greatest share (39%) of deal numbers in North Africa in 2007-2014.

Osibo said that PE firms are looking in deals in Morocco because the Arab Spring had a relatively low impact on the country, compared to some other countries in the region.

He said that in addition, business and trade reforms are generating results in Morocco, whereas several sectors were recently opened for privatisation, such as infrastructure and telecommunications.

“There is opportunity for portfolio company expansion into Francophone West Africa,” he added.

Osibo said that majority of deal flow in North Africa has been in Industrials, Consumer, Materials and Health Care sectors: “These sectors are likely to continue to attract PE Investment.”

According to the study, trade sales are the most significant exit route in North Africa.

“Acquisitions by Middle Eastern and European multinationals keen on North African companies have resulted in trade sales emerging as the most significant exit route. As in the rest of Africa, there is increasing diversification of exit routes, such as sales to other PE firms and via IPO,” commented Osibo.

For example, two recent IPOs include: Emerging Capital Partners’ exit of Sociéte d’Articles Hygiéniques via IPO on the Tunisian Stock Exchange (2014) and Abraaj’s partial exit of Integrated Diagnostics Holdings to Actis (2014); and then listing on the London Stock Exchange (2015).

Osibo said that continued economic, business and political reforms in North Africa should support the growth of PE – and private investment generally – in the region in the medium to long term.

“PE investors are focusing instead on the long term drivers for growth, including attractive demographics, an established manufacturing base and good geographic location and trade links,” he said.

“In addition, North Africa has a similar legal and regulatory structure and common language with Francophone West Africa, facilitating the expansion of portfolio companies into West Africa which further drives the growth of North African PE-backed companies,” he added.