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African oil & gas draws renewed interest from global PE

Anna Lyudvig
July 27, 2016, midnight
492

Word count: 373

There is an anticipation that deal making in the oil & gas sector will grow in Africa, Claire Lawrie, EY Africa Energy Lead, has said.

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There is an anticipation that deal making in the oil & gas sector will grow in Africa, Claire Lawrie, EY Africa Energy Lead, has said.

According to an EY global survey of 100 PE firms active in the sector, 80% of respondents believe that activity will increase, compared with 68% in 2013.

Lawrie said: “Investors are being drawn by the promise of new infrastructure initiatives across the continent, opening up new trade routes and enhancing regional integration, such as rail and port developments in Mozambique and Angola, as well as stronger regulatory systems in many countries such as Kenya and Ethiopia.”

With $971.4bn of PE dry powder from June 2016 still to be deployed, EY’s survey, Capitalizing on opportunities: Private equity investment in oil and gas, reveals that PE firms are looking at the oil & gas sector in Africa with renewed interest.

Despite the fact that only 1% of respondents are currently active in Africa, the EY survey findings reveal increased attention to rising energy demand.

“Strong growth, rising demand and limited competition for deals are driving increased interest in Africa,” said the Managing Director at a US PE firm.

“The continent has long held enormous promise but was overshadowed by a legacy of conflict, corruption and economic crises. However, the region has seen a broad range of reforms recently. We look forward to investing in Africa over the coming years.”

In regards to the investment strategies, 85% of respondents expect growth equity to be the most popular PE deal type in Africa.

“While growth equity investments typically don’t provide investors with direct control of the company, careful due diligence and alignment of incentives between investors and management can often ameliorate the risks of a non-controlling interest,” EY said.

Overall, in today’s low oil price environment, PE firms are well-positioned to provide short-term and long-term financial solutions across the oil & gas sector.

PE firms have an important role to play in today’s transforming oil and gas sector. 

"Opportunities will continue to emerge over the course of the year as more companies succumb to the new normal oil price environment. Funds looking to invest will need flexibility, patience and clear strategic plans to take advantage of a buyer’s market," EY said.

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