The sixth edition of its biennial valuation methodology survey entitled An African perspective: Valuation methodology survey 2012 reflected the views of 49 financial analysts and corporate financiers.
This year the study broadened the reach of the previous South African surveys by including perspectives from analysts in East and West Africa.
"A significant number of corporate executives have declared their company's intentions of growing their presence in Africa and the number of global companies looking to establish a foothold on the continent has increased‚" Jan Groenewald‚ valuation and economics leader at PwC corporate finance said.
"A key characteristic of the post-2008 recession has been the increase in prominence of Africa as an investment destination. With an already higher than average growth rate‚ Africa is becoming an attractive place to do business especially as corporates in developed markets seek to augment slowing growth rates in their home markets.
"Price and value however remains the key challenge for companies doing deals in Africa as the gap between sellers and buyers seems larger on the continent than in other jurisdictions‚" he said.
This year's survey looked at companies' perceptions of investment around Africa as an investment destination‚ as well as how corporate executives across the continent addressed the complexities associated with valuing businesses in Africa.
Specific questions addressed in this edition of the report related to:
• The reasons for the increased investor interest in Africa;
• The industries that are attracting the most interest in Africa from potential investors;
• The level of cross-border and intra-African interest in the continent;
• Deal activity in African markets;
• Companies' perceptions of African markets;
• The challenges faced by companies in performing valuations in African markets.
"The survey does not represent a detailed economic study of investment in Africa but does provide an insight into the perceptions and experiences of corporate financiers in Africa‚ and how they approach valuing businesses in Africa," Groenewald said.
Economic growth in Africa has recently been significantly higher than that in many developed regions‚ which is often cited as the main reason for investment in the continent.
On average‚ developing economies have an expected five-year compound annual growth rate (CAGR) that is more than twice that of developed economies‚ according to the International Monetary Fund.
"Africa has a lot to offer‚ particularly in terms of scarce resources. However there many other factors hindering the continent's success‚ such as a lack of infrastructure‚ various barriers to trade‚ low productivity and skills shortages. Each African country should be considered according to its individual risks and opportunities," the study claims.
The level of activity by industry tends to differ between regions. The study shows that the most predominant target industry in West Africa is the retail‚ consumer goods and industrial products sectors‚ whereas mining continues to be a key sector within the southern African market.
The financial services sector is a key focus area for all markets‚ but is particularly strong in East and West Africa.
Groenewald said that the main issues around emerging market valuations were the lack of industry data and the inability to find comparable companies. This was largely because of a lack of active markets.
In some emerging markets active secondary markets and exchanges were not present‚ or those that were present were so limited that the valuer was unable to gain much use from the information these markets provide‚ he said.
Furthermore‚ in some emerging economies active markets are present but the breadth of the markets is limited. As a result‚ the valuer may not be able to find suitable comparable companies to use in their analysis.
"The outlook for deal activity in the emerging markets is clearly improving. However‚ companies need to do more to understand emerging markets and manage the risks as this will boost their chances of entering into successful cross-border transactions in fast-growing developing economies‚" Groenewald added.
