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Sub-Saharan Africa attracting private equity investors

         Date: 2012-03-12

           Tag: Sub-Saharan Africa, Sub-Saharan Africa attracting investors

Summary: The Africa region development is slow, but in recent years, there are many investors in parts of Africa, very interested, then increase the investment, just investment is not too strong.

The Africa region development is slow, but in recent years, there are many investors in parts of Africa, very interested, then increase the investment, just investment is not too strong.

Pro-Africa campaigner Sir Bob Geldof has set up his own private equity firm 8 Miles, to invest in a range of sectors across the continent. Others are beginning to do the same.

Of all funds that include Africa as part of their focus, a total of $3.5bn was raised last year. This was unchanged on the previous year and $900m down on the total raised in 2009. In the boom times, $14.6bn was raised in 2007, and $11.9bn in 2008, according to data provider Preqin.

However, fundraising vehicles that target Africa exclusively have shown a more positive trend. Last year, a total of $3bn was raised by Africa-exclusive funds, compared with $2.8bn in 2010 and $2.4bn in 2009. This comes after fundraising plunged from $5.2bn in 2007 to $1.4bn in 2008 after the global financial crisis.

Robust growth

Economic growth in sub-Saharan Africa remains robust. The world’s fastest economic growth last year was from Ghana with 13.5%, according to the US Central Intelligence Agency.

At the moment, the private equity landscape is dominated by emerging markets specialists such as Aureos Capital. Aureos, which was acquired in February by Middle East specialist Abraaj Capital, has $571m in funds under management in Africa, according to its website.

Sev Vettivetpillai, Aureos chief executive, said the relative infancy of private equity in the region was related to the size of the firms investing. He said: “From 1992 to 2002, we witnessed very small venture investments. Then, from 2002 onwards, we saw more growth capital, in the region of $2m to $15m. We have seen investment predominantly in South Africa, Zimbabwe, Kenya, Uganda, Tanzania, Senegal and Nigeria.”

Vettivetpillai said the region’s growth was showing similar trends to other developing nations with a growing consumer class. He said: “In the ’90s, venture capital was linked to telecommunications. Today, the focus is on [industries targeting] middle income groups, and industrials firms. The financial services industry is also growing, with insurance becoming gradually more popular across Africa.”

The largest private equity deals completed since 2000 have been consumer based – and executed before the global financial crisis. The largest since 2005 was the $3.4bn sale of South African retailer Edgars Consolidated Stores to Bain Capital in February 2007, according to Dealogic.

Murray Grant, a London-based partner at emerging markets private equity firm Actis, said countries north of South Africa were mainly the subject of smaller deals.

Speaking from Rwanda last week, he said: “We have seen a real buzz from private equity in sub-Saharan Africa in the last 10 years, though this has been linked to the larger economies of the region. Countries that are enjoying GDP growth above 7% have proven attractive, as has South Africa, which has seen more ‘classic’ private equity transactions.”

Grant said the privatisation of energy industries, expected in countries such as Nigeria, would also encourage private equity interest. He dismissed Africa-sceptics, who highlight corruption and the lack of regulation, as ill-informed. He said: “The region enjoys a robust legal infrastructure, often developed from English or French systems. There are also refreshingly well-thought-out regulatory regimes around the telecoms and banking industries.”

Lack of leverage

Warren Watkins, partner and head of private equity markets in Africa at advisory firm KPMG, agreed: “The challenge for investing north of South Africa is that banking sophistication is not as high as in western Europe or South Africa, so it can be difficult to obtain leverage for deals. As a result, many deals are equity based in these countries.”

Grant does not expect an influx of large buyout giants until several larger corporate firms are put up for sale.

One global player with a keen interest in Africa is US buyout giant Carlyle, which has announced its intention to raise a $500m fund targeted exclusively at sub-Saharan Africa.

The Carlyle Sub-Saharan Africa fund expects to have a first close within the next few months. It will invest in large national companies seeking expansion both within individual countries and across neighbouring countries.

A source close to the situation said the new fund was likely to “maintain a pan-African focus, with an emphasis on consumer markets”. Carlyle already has a ground presence in Lagos, Nigeria and Johannesburg, although there are no immediate plans for further offices.

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