Why More Private Equity Firms Are Moving To Africa



The popularity of Africa as a destination for private equity investments has risen in  the last few years as an increasing middle class in some of the world’s fastest growing economies tells a different story from the struggles and strifes the continent was labeled for many decades.

“Africa now represents an increasing proportion of investors’ private equity portfolios,” Runa Alam, non-executive chairman of the Africa Private Equity and Venture Capital Association (AVCA),  told The Deal.

“There are an increasing number of investible, high-quality companies and industries, and many exit opportunities with highly attractive multiples.”

Alam’s Africa-focused private equity firm Development Partners International LLP announced the final close of its new $725 million fund on April 1.

Other private equity funds that have discovered the jewel that is Africa’s entrepreneurship ecosystem include Helios Investment Partners (closed its third Africa fund at $1.1 billion in February); the Carlyle Group’s which created a $698 million sub-Saharan Africa vehicle last year; and Harith General Partners’ which closed a $580 million Pan-African Infrastructure Development Fund in 2014.

Other big funds that ventured into Africa in 2014 were Amethis Finance Fund worth $350 million; and Investec Asset Management’s $250 million Fund II.

According to figures from the Emerging Markets Private Equity Association, 2014 saw a total of about $4 billion raised by private equity in sub-Saharan Africa, with 42 deals worth a total of $436 million in South Africa alone.

Alam said younger generation of African businessmen have a totally different attitude towards foreign investors that is encouraging more funds to come in to the region, even in places like Nigeria, which have long had a reputation for fraud and corruption.

“There’s been a changing of attitudes over the last 15 years,” Alam  told The Deal. “The new generation of managers try to do business in a very proper way. Those are the companies that we would engage with.”

Africa’s investment landscape is however not smooth, with Boko Haram attacks in Nigeria, Xenophobic violence in South Africa’s slowing economy and the Al Shabab threat in Kenya, but investors in the region have learnt to loom at “the Macros” of each country and overlook the immediate risks.

“People are interested in Nigeria because of a macro play. There’s a massive population, it’s growing rapidly and there’s a petro-currency and there’s an economy that has a natural way of generating dollars,” said Stuart Bedford, head of Linklaters LLP corporate practice in London and a veteran of many Africa deals.

“If you’ve found the right company in the right sector and the right people to invest in and take a five to seven-year view of your money, you ought to do reasonably well out of it.”

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