South Africa attracts more than half the continent’s PE transactional activity thanks to a combination of market size, ease of doing business and comparatively well-developed financial institutions and governance practices, Sean McPhee, partner at Deloitte’s Corporate Finance unit, has said.

While Southern Africa still dominates transactional activity in the sector due to the maturity of the South African market, the Deloitte 2015 Africa Private Equity Confidence Survey (PECS) highlighted the growing opportunities for the asset class in East and West Africa.

“West and East Africa offer significant growth opportunities. Respondents in East and West Africa are also noticeably more optimistic about the economic prospects in those regions than their counterparts in Southern Africa,” said McPhee.

The Survey garnered 117 detailed responses between December 2014 and February 2015 from private equity (PE) players in the continent’s three largest economic regions: Southern, East and West Africa.

While the report showed that PE activity across all three regions is expected to increase, 83% of West African respondents and 79% of East African respondents anticipate higher overall PE market activity in 2015 compared to a more muted, but still positive 67% in Southern Africa.

The 2015 Africa PECS revealed that respondents in all three regions are heavily focused on acquiring new assets in 2015, with those in East and West Africa exhibiting a particular propensity for increased investment.

A massive 83% of respondents in West Africa and 71% in East Africa expect to invest more of their this year, compared to 52% in Southern Africa.

Greg Benjamin, Deloitte Mergers and Acquisition Advisory Leader, said: “The overwhelming desire to invest in East and West Africa is partly a function of the lack of maturity in these markets compared to Southern Africa but it also shows the growing recognition of PE as an investment vehicle in these regions. The one consequence of this will be increased competition for deals, which could drive up asset prices in the process.”

In terms of the sectors favored by African PE players, respondents across all three regions exhibited a distinct preference for consumer-oriented industries, with Southern and East Africa favoring food and beverages, while financial services emerged as the number one choice in West Africa.

Southern Africa is the region with the biggest funds in terms of scale, with no less than 74% valued at more than $200m, being indicative of the more mature South African PE industry in this region.

The comparative size of the East and West African PE markets has resulted in smaller fund sizes and a consequent preference for smaller transactions.

In Southern Africa, almost 50% of PE investors will target later-stage companies priced at between $10m and $50m.

That compares to 44% of East African investors favoring transactions of less than $6m and 39% of West African respondents preferring acquisitions of between $6m and $10m.

According to the Deloitte 2015 Africa PECS, the majority of East and West African respondents stated that they would seek funding from Europe as their first choice followed by the US, with none indicating a desire to source funds from South Africa.

By contrast, 60% of Southern African respondents see South Africa as the most likely source of funding.

“The fact that South Africa is not a favored source of funding for East and West African respondents is interesting, and highlights the immense opportunity for South African funding sources in these rapidly growing markets,” said McPhee.