Archive for the 'Private Equity' Category

Private Equity Africa – 2016 in review

Great speakers and information at the Private Equity Africa 7th annual review and summit, with leaders of the African private equity world outlining key trends of 2017 and reviewing a tough 2016. There were excellent presentations by key speakers including David Cowan, Economist of Citi, Nigel Wellings of sponsor Clifford Chance and Leon Calvert Saunders of host Thomson Reuters.
The panel shared many key insights including the emerging trend to create credit funds. The panel was chaired by Spencer Baylin of Clifford Chance: Runa Alam (Development Partners International), Marlon Chigwende (Arkana Partners), David Damiba (Helios Investment Partners), Mark Jennings (Investec Asset Management), Suleiman Kiggundu (CDC) and Matteo Stefanel (Apis Partners).

Gail Mwamba: Private Equity Africa

Here are highlights from the presentation by Gail Mwamba, of Private Equity Africa, who organized and led the summit. They are the leading publication on private equity in Africa and have just published a very data driven 2016 annual report supported by global data from Thomson Reuters. For more information and the review (subscribers only) check the website.

Different international data sources have different ways of measuring fund-raising, but both show that 2016 was a hard year, particularly for smaller funds with little record. According to Preqin, $1.3bn was raised for Africa funds in 2016, down from $4.6bn the year before. EMPEA, which measures total fund-raising not just closes for sub-Saharan Africa, measured $1.9bn in 27 fund-raising transactions, down from $3.8bn in 31 transactions in 2015. Africa’s share of emerging markets fundraising was 4.5%, down from 8% in 2015. Globally fund-raising was up but emerging markets lost out. Looking at the charts however, 2015 was an exceptional year and the number is closer to the historical trend.

Source EMPEA


Credit fund-raising showed a similar pattern.

source EMPEA

The number of deals picked up, according to Preqin, with about 100 deals valued at nearly $3bn although Mwamba said the real number of deals was much higher was many are not published. Business services continued the most popular transactions, followed by industrials and then consumer. South Africa continued to attract the most deals (31%) while Nigeria won 11% of deals.

Source: Preqin

The 2016 deals by value were influenced a giant deal by little-known Chinese private equity firm, which paid $1.14bn to acquire Lundin Mining Corporation’s 24% stake in Tenke Fungurume copper mine in the Democratic Republic of Congo. Other deals were Wendel Group buying Tsebo Solutions, a logistics and facilities services provider with 34,000 employees spread across 23 countries in Africa, for ZAR5.25bn from a consortium led by Rockwood PE. The third deal was Helios investing into Oando Gas and Power.
According to Preqin there were 31 exits at total value of $1.4bn, down from 31 exits valued at $2.1bn in 2015. Two sales by Rockwood (Tsebo and Safripol) influenced the figures. The record high was $20.4bn of exits in 2014.

Source Preqin

Tonight – Private Equity Africa 7th Annual Review and launch of report

Tonight is an excellent meeting: Private Equity Africa 7th Annual Review & Outlook Seminar at Thomson Reuters HQ in Canary Wharf, London. The meeting “Generating alpha in uncertainty” features top speakers identifying 2017 trends in Africa, including emerging credit funds, private equity deal pricing and activity.
Speakers include: Leon Saunders Calvert (Thomson Reuters), Gail Mwamba (Private Equity Africa), David Cowan (Citi), Nigel Wellings (Clifford Chance), Runa Alam (Development Partners International), Marlon Chigwende (Arkana Partners), David Damiba (Helios Investment Partners), Mark Jennings (Investec Asset Management), Suleiman Kiggundu (CDC) and Matteo Stefanel (Apis Partners).
There will also be the launch of the first Thomas Reuters Private Equity Africa 2016 Annual Review Report of Africa’s private equity industry including mergers & acquisitions, fund-raising and deals and a ranking of which houses are making the most deals in Africa.
I’m very honoured to be invited to host an evening of great insights and networking. For more information check the website.

Private equity – good for investing, slow for fund-raising

Source: EMPEA

Fund-raising for African private equity funds was slower in the first three quarters of 2016 compared to the previous year, but investing and deal-making activity was stronger. According to figures recently released by the Emerging Markets Private Equity Association (EMPEA), total fund raising by September 2016 was $1.1bn, only 31% of the capital raised in the same period in 2015.
Deal-making was also at $1.1bn according to the EMPEA figures, up 22% from the previous year when it was $0.9bn. However, analysis at Private Equity Africa suggests some $3bn in private equity deals went through in sub-Saharan Africa, using different metrics, suggesting a good year for deals.

Source EMPEA

Africa IPO round-up

A roundup of some recent initial public offers (IPOs) of shares on Africa’s stock exchanges to raise capital

In early October, MTN launched plans to sell up to 35% of shares on the Ghana Stock Exchange. Ghana’s Securities and Exchange Commission Director General Adu Anane Antwi confirmed they had started the listing process and were working on the prospectus but no timeline had been given. According to local reports, MTN received its 15-year 4G licence in 2015 after spending $67.5m and on condition that it lists. It hopes to raise up to $500m.
MTN Nigeria is also working on plans for an initial public offer (IPO) of shares on the Nigerian Stock Exchange in 2017 which could raise up to $1bn. Nigeria is among several African governments encouraging telcos to list on local bourses and listing is among conditions to settle a record NGN330bn ($1.1bn) fine for failing to disconnect 5.1m unregistered subscribers. Nigeria contributes a third of sales and profit for the Africa’s biggest phone company, which is listed in Johannesburg with market capitalization of ZAR212.8bn ($15.3bn) in early October.
Listings and capital-raising momentum has been maintained on the Nairobi Securities Exchange. Deacons Kenya is the first listed fashion retailer, after joining the Alternative Investment Market Segment (AIMS) of the NSE on 2 August. CEO Muchiri Wahome said the extra funds were to fund expansion into towns with “a vibrant middle class” across Kenya, spurred Kenya’s rapid and ambitious devolution and setting up 47 counties under its 2010 Constitution. Deacons is also eyeing opportunities in neighbouring Rwanda and Uganda. It will also help existing shareholders who want to sell. The retailer listed about 123m shares at an opening price of KES15 ($0.15) each, but by early October the price had slumped to KES8.55.

 

Nairobi centre (credit www.kenya-advisor.com)

Nairobi centre (credit www.kenya-advisor.com)

In June, leather and shoe retailer Nairobi Business Ventures, which operates the brand KShoe, had become the fifth listing on the NSE’s Growth and Enterprise Market Segment aimed at smaller businesses. It was listed through introduction and valued at KES118m ($1.2m). Previous 2016 share issues included Longhorn Publishers in May. In June power generator Kengen succeeded in the Kenyan bourse’s largest rights issue, raising KES26.4bn ($262.1m) by offering 4.4bn new shares at KES6.55 each, with a 92% subscription rate. Kengen has projects to generate another 700MW of power, of which 605MW is geothermal.
However, Fusion Capital had to cancel its IPO despite extending twice after only getting 38% uptake and four investors for its KES2.3bn offering and failing to meet the minimum threshold.
The Johannesburg Stock Exchange had its second private equity listing. Universal Partners raised R1.3bn ($93.7m) in an IPO which was only open for 4-5 August and started trading on the Alt-X market on 11 August. The company was registered in Mauritius in April and also listed on the Stock Exchange of Mauritius. Its mandate is to invest in properties across Europe, at £10m-£30m ($12m-$37m) each and it aims to start investing within six months. The IPO was for 72m shares at R18.07 each. Several companies aiming to raise capital for African and international investments have dual-listing on the Mauritius and Johannesburg exchanges.
Liberty Holdings is likely to follow up its Kenyan IPO success with a South African Real Estate Investment Trust (REIT) called Liberty Two Degrees in December. This will include some ZAR6bn of its existing portfolio, including iconic malls around Gauteng, and ZAR4bn of new money. As in Kenya, the property investments are managed by Stanlib.
West Africa’s integrated regional stock exchange, Bourse Regionale des Valeurs Mobilieres (BRVM), based in Abidjan, Côte d’Ivoire, plans to build a platform for listing mining shares and raising capital locally. The exchange is talking with Canada’s Toronto Stock Exchange (TMX Group), a favourite bourse for early-stage mining entrepreneurs. BRVM General Manager Edoh Kossi Amenounve says it could open by 2018 and will be for companies exploring or operating mines in the region. There is likely to be a waiver to the usual requirement for 2 years of trading history. The BRVM links eight West African countries, including gold exporters Mali, Burkina Faso and Côte d’Ivoire, and fourth-largest uranium producer, Niger.
Egypt’s Minister of Investment Dalia Korshid says the Government aims to raise up to $10bn over the next three to five years with IPOs of government-owned companies in the oil sector but will start with restructuring state-owned electricity companies.

Ethos Capital PE lists after R1.8bn oversubscribed private placement

Private equity company Ethos Capital, based in Mauritius, listed on South Africa’s JSE on 5 August after R1.8 billion ($131 million) oversubscribed private placement for institutional investors. The listing is a unique combination of a liquid listed share which invests into a diversified pool of unlisted private equity investments. It is aimed particularly at institutional investors, including pension funds.
Ethos had placed 180m A ordinary shares at R10.00 each. Rand Merchant Bank was the financial advisor, sole global coordinator, bookrunner and JSE sponsor. The first trade on Friday was at R10.26, pushing market capitalization up to R1.85bn.
The new fund starts as a cash shell and will invest into a portfolio of unlisted investments with Ethos Private Equity, sub-Saharan Africa’s largest private equity firm, acting as the new company’s fund manager and advisor.
Stuart MacKenzie, CEO of Ethos Private Equity, said in a press release: “Growth is a central principle of Ethos Private Equity’s strategy: value is added by actively transforming the strategy, operations and finances of investee businesses, striving to make them best-in-class. Through pioneering thought leadership, creativity and innovation, Ethos Private Equity has developed a long track record of sustainable investor returns.”
Peter Hayward-Butt, CEO at Ethos Capital, said: “We look forward to investing alongside Ethos Private Equity into high-potential businesses, supporting economic growth and job creation in the long term whilst simultaneously delivering value to our shareholders.”
Ethos Private Equity has a 32-year history and has invested in 104 acquisitions of which 91 have been realized, delivering investment returns with a gross realised internal rate of return (IRR) of 37.4%.

Stuart Mackenzie, CEO Ethos Private Equity

Stuart Mackenzie, CEO Ethos Private Equity

Ethos Capital is expected to invest into:
• Primary investments into various funds to be raised and managed by Ethos Private Equity. EPE is reported to be planning to fund raise for Ethos VII fund by early 2017, targeting R8bn-R10bn with 25% for investments in sub-Saharan Africa outside South Africa. Ethos Capital is to commit up to R2.5bn. There is also plans for: a R2.5bn-R3bn Ethos Mid Market Fund I targeting deals of between R100m-R350m which will be majority black-owned and chaired by Sonja de Bruyn Sebotsa, according to Financial Mail, and Ethos Mezzanine Fund I which aims to raise R1.5bn and will be run by a team which formerly operated as Mezzanine Partners.
• Secondary investments by buying interests owned by limited partners (LPs) in existing Ethos funds. This could include up to $600m invested into Ethos VI fund which closed at $800m in 2013 (against a $750m target), according to Private Equity Africa website.
• Direct investments into investee companies alongside Ethos funds
• Temporary investments including a portfolio of low-risk, liquid debt instruments such as South African government bonds and similar instruments, managed by Ashburton Fund Managers.
According to the prospectus, Ethos Capital investors will be charged a management fee of 1.5% of invested net asset value and 0.25% on cash balances. The investors are offered 20% exposure to growth, subject to a 10% hurdle.
Previously Brait, another leading South African private equity company, had listed its portfolio.
Mackenzie says South Africa does not have enough investments in alternative assets such as private equity, according to the Financial Mail, which reports they make up barely 2% of pension fund assets compared with 20% in many developed markets. The listed vehicle will enable funds to share in the outperformance of private equity but will mean they do not have to stay invested for the full fund life, often 10 years.
The report adds that Mackenzie promises investors will not be subjected to a double layer of fees and that Ethos Fund III and IV outperformed listed markets by more than 5% but Fund V, invested in the years before the financial crisis, underperformed listed markets by 2.4%.
A report by RisCura and the SA Venture Capital Association (Savca) shows that private equity in South Africa has generally outperformed the total comparative return of investment of the JSE’s all share and SWIX indices, returning an internal rate of return of 18.5 percent. Over the same period, EPE returned 20.9 percent on realised investments.
Key investors in the private placing reportedly included fund manager giants such as Coronation and Stanlib and emerging managers such as Mergence and Sentio.

Will Interswitch be Africa’s first $1bn tech “unicorn”?

Nigeria’s digital payments and payment card giant Interswitch Ltd could become Africa’s first tech “unicorn” or technology company valued at over $1 billion. Private equity firm Helios Investment Partners (majority owner) is preparing to sell and Citigroup Inc are hired to handle the sale, which could involve an initial public offer (IPO) and listing on the London and Lagos stock exchanges.
Website TechCrunch reported that Interswitch has 32 million customers for its “Verve” chip-and-PIN cards and its Quickteller digital payment app processed $2.4 billion in transactions. It processes most of Nigeria’s electronic bank, government and corporate transactions.
A subsequent report from Bloomberg says Helios paid $92 million for a 52% stake in 2010.
Techcrunch contributor Jake Bright (Twitter @JakeRBright, co-author of The Next Africa: An Emerging Continent Becomes a Global Powerhouse) reports that Interswitch CEO and founder Mitchell Elegbe told him no final decision has yet been made and they are also mulling the option of a trade sale.

Mitchell Elegbe CEO Interswitch (from www.naij.com)

Mitchell Elegbe CEO Interswitch (from www.naij.com)


Bright’s Techcrunch report also cites Eghosa Omoigui, Managing Partner of EchoVC, a Silicon Valley fund investing in African start-ups: “They’ve already selected the ibankers and will likely go public sometime between Q2 to Q4 at (or close to) a $1 billion dollar valuation–roughly two times revenues,”.
Bright points out that there are strong tech opportunities for ventures focused on digital commerce and payments, and cites research by Crunchbase that VC investors put $400m into African consumer goods, digital content and fintech-oriented startups. Helios and Adlevo Capital back ventures such as MallforAfrica (e-commerce) and Paga (payments).
Although Kenya has the spotlight still, because of the runaway success of Safaricom’s M-PESA product, which has 13m customers and generated $300m in revenues for Safaricom in 2014, consumers in Nigeria are projected to generate $75bn in e-commerce revenue by 2020. See this McKinsey report on future consumer spending trends in a youth-driven market.
Interswitch – motto “bills aren’t fun but payments solutions can be” – is still building digital finance market share in Nigeria and in 2014 bought Kenya’s Paynet and also has operations in Uganda, Tanzania and Gambia. The IPO could support plans to expand into more countries – Cameroon, Democratic Republic of Congo and Ghana were mentioned in an earlier Bloomberg article.
Elegbe, age 43 years, founded Interswitch in 2002.
Bloomberg reports that if this goes ahead, it will be one of the few private equity exits at a valuation of over $1 billion. It also cites Bain Capital’s $1.2bn exit from South African retailer Edcon’s private label store cars in 2012, sold to Barclays Absa unit. It says increasing use of e-commerce worldwide makes payments-processing industry a “structural growth market”.
The London Stock Exchange has more than 120 African listings.
In its 2010 press release, Helios described the company: InterSwitch provides shared, integrated message broker solutions for financial transactions, eCommerce, telecoms value-added services, eBilling, payment collections, 2 and also administers Verve, the leading card scheme in Nigeria. The Verve card, which is currently issued by 16 out of the 24 banks in Nigeria, is the first and only chip-and-pin card accepted across multiple payment channels including Automated Teller Machine (“ATMs”), Point of Sale (“POS”) terminals, online, mobile and at banks. InterSwitch has been at the forefront of the development and growth of the epayment sector in Nigeria which is evidenced by its unique position of being the only switching and processing company connected to all banks in the country as well as over 10,000 ATMs and 11,000 POS terminals. In addition, InterSwitch is the leading processor for Mastercard and the market leader in merchant acquiring/POS, a segment which is still emerging and has potential for tremendous growth in Nigeria. Babatunde Soyoye, Managing Partner and Co-founder of Helios added: “InterSwitch is a Nigerian success story having been led by a superb management team and benefiting from the foresight, innovation and support of its founding shareholders, and a supportive regulator in the Central Bank Nigeria.”

Private Equity Africa awards 2015

Congratulations to the winners of the 2015 Private Equity Africa Awards! These celebrate the achievements of Africa’s top General Partners (GPs) and advisors in 2014. The awards are in their 4th year and were handed out at a gala dinner at London’s Grosvenor House Hotel on 29 April.

Outstanding leadership award: Runa Alam, Chief Executive Officer, Development Partners International
This accolade is awarded based on voting by leading industry investors.

House of the year
Sub-Saharan House of the Year: Carlyle Africa
Award collected by Marlon Chigwende, Managing Director and head of Africa team at Carlyle.

Special recognition: General Partners
North Africa Investor: Abraaj
Award collected by Lloyd West, Director at Abraaj.

Fundraiser of the Year: Carlyle
Award collected by Marlon Chigwende, Managing Director and head of the Africa team at Carlyle.

Outstanding First-Time GP: Amethis Finance
Award collected by Luc Rigouzzo, Managing Director at Amethis.

Outstanding South Africa Exits: Capitalworks
Award collected by Chad Smart, Partner at Capitalworks.

Frontier Investor: XSML
Award collected by Marcel Posthuma, Managing Partner at XSML.

Exit of the year:
Mansard Insurance by Development Partners International & AfricInvest
Award collected by Idris Mohammed, Partner at Development Partners International, and Hakim Khelifa, Senior Partner and Co-Head of Sub-Saharan Africa at AfricInvest.

Deal of the year
Large-cap deal of the year: Helios Towers Africa by Helios
Award collected by Henry Obi, Partner at Helios.

Mid-cap deal of the year: J&J Africa by Carlyle
Award collected by Marlon Chigwende, Managing Director and head of the Africa team at Carlyle.

Small-cap deal of the year: Moablaou by Databank
Award collected by Brian Frimpong, Managing Partner at Databank.

Portfolio company of the year
Development impact: Emerging Capital Partners & Investec Asset Management for IHS
Award collected by Hurley Doddy co-CEO at ECP, and Mark Jennings, Investment Principal at Investec Asset Management.

Innovation: Helios for Interswitch
Award collected by Pierre Heinrichs, Principal at Helios.

Improvement & social impact: Adenia Partners for Newpack
Award collected by Antoine Delaporte Managing Director at Adenia Partners.

Special recognition: deals & exits
The event also recognized investors and advisors that had delivered exceptional transactions during 2014 that do not fall into the main award categories.

Landmark deal: IHS by Emerging Capital Partners
Award collected by Hurley Doddy, co-CEO at Emerging Capital Partners.

Small-cap exit: African Frontier Capital for Electro-MaxxUganda
Award collected by Roland Tatnall, Managing Partner at African Frontier Capital Partners.

Debt deal: TLG Capital for GetBucks
Award collected by Dominic Clive, Principal at TLG Capital.

Frontier deal – Côte d’Ivoire: Cauris Management for Cipharm
Award collected by Jean-Marc Savi de Tové, Partner at Cauris.

Advisors of the year
Overall legal advisor: Clifford Chance
Award collected by Spencer Baylin, Partner at Clifford Chance.

Funds legal advisor: Webber Wentzel
Award collected by Markjan van Schaardenburgh, Partner at Webber Wentzel.

Deals legal advisor: Clifford Chance
Award collected by Spencer Baylin, Partner at Clifford Chance.

Fund administration: Trident Fund Services
Award collected by Karine Seguin, Business Development Director at Trident, and Rajan Rosick, Head of New Business at Trident.

Corporate finance advisor: Intercontinental Trust
Award collected by Noelle McKean, Senior Vice President at Intercontinental Trust.

Single-deal advisor:: Dentons for IHS
Award collected by Nicholas Plant, Partner and Head of Private Equity, UK and Africa, at Dentons.

The final award winners were selected by an independent panel of judges:
• Alex Wolf, Vice President, HarbourVest Partners
• Arjette van den Berg, Independent Private Equity Advisor
• Arnaud de Cremiers, Partner, Adam Street Partners
• Charles Rose, Chairman, Hainsford
• Dushy Sivanithy, Principal, Pantheon Ventures
• Hervé Schricke, Chairman, Xange/AFIC Africa
• Jean-Luc Koffi Vovor, Founder, Kusuntu
• Matthew Craig-Greene, Founder, Craig-Greene & Co
• Michelle Essomé, Chief Executive Officer, AVCA
• Rory Ord, Head of RisCura Fundamentals, RisCura
• Vivina Berla, Senior Partner, Sarona Asset Management

Advisors
Mark Artivor, Independent Private Equity Advisor
Thomas Ferede, Independent Private Equity Advisor

Insights of private equity in Ethiopia – Schulze Global Investments

Schulze Global Investments is the longest-established private equity firm in Ethiopia. It is run by a family office and is extremely well networked. It has made several deals, but apparently no exits yet although prospects are improving.
SGI Ethiopia has also not been much in the media. In this interview, Dinfin Mulupi of HowWeMadeItinAfrica.com interviews Blen Abebe, vice president at SGI Ethiopia, who highlights the importance of a local team for successful private equity. For the full story, have a look at the original interview here.

Blen Abebe (photo reprinted from HowWeMadeItinAfrica)

Blen Abebe (photo reprinted from HowWeMadeItinAfrica)

So how has SGI been able to navigate this unique environment?

At Schulze Global, most staff are Ethiopian-Americans and the fact that you look Ethiopian and speak the native language ensures the locals can relate to us. For example, we have closed deals partly because we were on the ground and could relate better to locals than other private equity firms. And it makes sense, because most family businesses have been passed down through generations so they wouldn’t necessarily trust, or be willing to work with, you before they get to know you. That is why Schulze Global ensures it has people who know both the foreign and local culture.

What are some of the challenges SGI faces in Ethiopia?

Well, being the first one on the ground can have both positive and negative effects. For example, when Schulze Global opened its office back in 2008 most people had never heard of private equity. So we literally had to go through a teaching process of what it was we are doing. And to add to that, most companies confuse us with a bank so we must almost always explain the difference between a private equity firm and a bank.

After they understand the private equity structure, then the next challenge is agreeing to the terms that are in the term sheet.

Do you see in the future any likelihood of an exit?
We haven’t done any exits yet, but the future looks positive as we are seeing many entrants into the market. Therefore an exit via a strategic buyer should be attainable.

With more private equity funds coming in, how will things play out?
Competition is definitely increasing. We see it already. In fact, in one deal we are currently looking at, the sponsor is telling us they are also being courted by another fund. But our strength has always been that we have been in Ethiopia the longest, so we know what works and what doesn’t. And that long presence, even a small thing like knowing where our office is and the fact that they can visit us anytime, gives the local sponsors comfort – and at the same time gives us some leverage compared with other funds using the “fly-in and fly-out” model.

What are Africa’s pension funds investing into?

Do you agree or disagree with this view? Comments are welcome below

Pension funds in 10 African countries already have $379 billion in assets under management – 85% or $322bn of it based in South Africa – and they continue to grow very fast. That means careful thinking about how to nurture Africa’s savings pool while the need to deploy these resources most productively puts the spotlight on the search for quality investment assets.

For example, Ghana’s pension fund industry reached $2.6bn by Dec 2013 after growing 400% from 2008 to 2014. Nigeria’s industry has tripled in the last 5 years to some $25bn in assets by De 2013, and assets under management are growing at 30% a year. There are 6 million contributors, but many more Nigerians still to sign up pensions.

Pensions have a special place in the capital market as they take a longer-term view and can be patient in the hope of greater returns. Some pension funds, in Africa and elsewhere, argue that pensioners are not just looking at the value of their retirement income but also the quality of their lives, opening the way to carefully chosen investments in infrastructure, healthcare and other benefits which pensioners and their families might enjoy.

What are the African factors driving the growth of pension funds?
• Many countries have set up new regulators and even more are introducing regulations, including forcing more employers to provide pensions. With the new regulatory frameworks come structural changes such as the need for professional third party asset managers
• Changing demographics: The age group over 60 years is the most rapidly increasing, according to some research
• It’s a virtuous circle, many Africans want savings opportunities. If pension funds produce results, and are well run and good at communicating, people will respond.

The growth is only beginning. So far only 5%-10% of the population in sub-Saharan Africa are thought to be covered by pension funds and 80% in North Africa. Pension funds are still tiny in comparison to gross domestic product (GDP), which in turn is growing fast in many African countries – for example pension funds are about 5% of GDP in Nigeria, compared to 170% of GDP in Netherlands, 131% in UK and 113% in America.

Southern Africa is generally better served: Namibia has some $10bn in pension assets representing 80% of GDP and Botswana $6bn or 42% of GDP. The biggest pension schemes are usually government and social-security funds as well as local government and parastatal funds (such as Eskom in South Africa), as well as those of big corporations and multinationals.

Economist Charles Robertson of Renaissance Capital says conservatively that pension funds in the 6 largest sub-Saharan African markets will grow to $622bn in assets by 2020 and to $7.3 trillion by 2050.

What to invest in?

The challenge is how to invest the capital productively. Are Africa’s entrepreneurs, corporate finance and investment banking houses and capital markets rising to the challenge of bringing a a strong pipeline of investment-ready projects to keep up demand for capital?

Capital markets need to offer liquidity and transparency both to channel the foreign capital looking for African growth opportunities for their portfolios and now for domestic funds too. Liquidity can be a key problem, even in Africa’s world-beating Johannesburg Stock Exchange, where the Government Employees Pension Fund (GEPF) is thought to account for 13% of market capitalization and to be the country’s biggest investor in commercial property.

Big funds in small other Southern African capital market swamps can be like hungry hippos, snapping up promising new investments as they surface. Even if they feel satisfied from a good run of success on some of these investments, they can hardly disgorge them back into the liquidity pool for other traders because of the gnawing fear they would not find other local investments to fill their bulging portfolios.

Others share the worry. Eyamba Nzekwu of Nigeria’s Pencom was reported as saying: “Savings are growing much faster than products are being brought to the market to absorb these funds”. Pension fund growth is thought to have contributed to a 79% surge in Ghana stock market in 2013 as funds chased too few investments.

Regulators should encourage the fund-managers to upgrade skills fast to be more proactive in picking and trading stocks and African fixed income. They should also widen the space in the interests of helping the markets and the funds to grow through liquidity. This means, for instance instance, urgently relooking restrictions on cross-border investments, including into other African markets.

Private equity and infrastructure

The pension funds provide a huge opportunity for alternative assets, especially private equity. According to research by the African Development Bank’s Making Finance Work for Africa and the Commonwealth Secretariat, African pension funds are estimated to have invested some $3.8bn-$5.7bn in private equity and to have scope to invest another $29bn (see table below). Many countries are passing new regulations to allow investment into private equity and other unlisted investments. Funds have been experimenting – sometimes disastrously – with small and medium enterprise and other developmental investments.

table50313_pensions

International private equity fund managers such as Helios and LeapFrog have also seen the future, making investment in pension fund providers – Helios took equity in Nigeria’s ARM Pension Fund Managers and LeapFrog into Ghana’s Petra Trust.

Africa has huge need for infrastructure finance and pension funds could be the ideal pool of patient capital but more work needs to be done to increase the supply of investable projects and to increase capacity of pension funds to invest in projects directly or through infrastructure fund managers.

Savings are good for growth, provided there are productive assets for them to go into. Africa’s savings are rising, often driven by regulation, and international interest has been strong for years. Can Africa’s entrepreneurs, their advisors, private equity funds and the capital markets institutions rise to the challenge of building a big enough pipeline of great investment opportunities suited to the needs of these investors?

For more reading:
This article is heavily based on work by: Ashiagbor, David, Nadiya Satyamurthy, Mike Casey and Joevas Asare (2014). “Pension Funds and Private Equity: Unlocking Africa’s Potential”. Making Finance Work for Africa, Emerging Markets Private Equity Association. London. Commonwealth Secretariat. Available through MFW4A.
Another book is by Robertson, Charles (2012). “The Fastest Billion: The Story Behind Africa’s Economic Revolution”. Renaissance Capital. Read more here or buy it on Amazon (link brings revenue to this site).
Other articles are at The Economist on Nigeria’s pensions, African Business and Wall Street Journal.

Private Equity Africa ranks top 10 deals in 2014

Leading website and magazine Private Equity Africa lists the top 10 Africa private equity deals from 2014. They use data from Preqin.

1. Helios Investment Partners – Helios Towers Africa – $630m
This is the second year that Helios Investment Partners took the top slot when it led a consortium to inject $630m of growth capital into telecommunications service provider Helios Towers Africa (HTA) in July. It was US-based private equity investor Providence Equity Partners’ first deal in Africa. The IFC’s African, Latin American and Caribbean Fund also invested for the first time in HTA. Existing investors Quantum Strategic Partners, Albright Capital Management and RIT Capital Partners also backed the tranche. (Helios’ big deal in 2013 was to partner with BTG Pactual and Indorama to bring $1.5bn investment into Nigeria-based oil and gas exploration company, Petrobras Africa.)

2. Emerging Capital Partners leads consortium – IHS – $490m
Emerging Capital Partners (ECP) led the consortium that invested $490m in Nigeria-based telecommunications towers company IHS. The latest 2014 funding round brought in Goldman Sachs was a new investor and the IFC Global Infrastructure Fund and African Infrastructure Investment Managers (AIIM) were also in. IHS is part-owned by Investec Asset Management, the first private equity investor to fund its expansion. Other existing investors are ECP, Wendel, sovereign wealth fund Korea Investment Corporation (KIC) and the Netherlands Development Finance Company (FMO). KIC first backed IHS when it joined Investec and ECP in a $1bn financing round in 2013. Standard Chartered Bank contributed $70m in senior debt specifically set apart to finance expansion into Zambia as part of the capital package

3. Abraaj – Liberty Star – confidential
South Africa’s Liberty Star Consumer Holdings (Libstar) manufacture and distributes food. It sells private-label products to retailers, own-brand products and third-party packaging and ingredients to the food industry. Abraaj acquired a majority stake in the company through a secondary buyout from Metier, Old Mutual Private Equity, Development Partners International and Lereko – which have all exited the company. Libstar management took a minority stake in the buyout. The deal value is confidential.

4. Atlas Merchant Capital – Union Bank of Nigeria – $270m
The investment was channelled through Atlas Mara Co-Nvest, its $325m investment vehicle listed on the London Stock Exchange. Atlas Merchant previously held 9.05% in Union Bank, inherited when it took over ADC African Development Corporation in early 2014. It committed the capital by exercising an option to acquire 20.89% of the financial services company.

5. IFC-Asset Management Compan & Temasek – Seven Energy – $255m
More sovereign wealth fund action in April, when Singapore’s Temasek partners with IFC Asset Management Company (IFC-AMC) to invest $255m in Nigeria’s Seven Energy, an oil and gas exploration and production company. Temasek contributed $150m for a 25% stake. Previous investors in Seven Energy include Actis, Investec Asset Management, Africa Finance Corporation, Capital International Private Equity and Standard Chartered Private Equity. Seven Energy’s $600m capital-raising round included $335m in debt of which the IFC African, Latin American, and Caribbean Fund contributed $30m.

6. Kohlberg Kravis Roberts – Afriflora – $200m
KKR’s first deal for Africa, in July, was approximately $200m in Afriflora, an Ethiopia-focused agriculture production company that cultivates, produces and sells roses based on Fairtrade standards. The company operates as Sher Ethiopia. The investment is part of KKR’s $6.2bn European Fund III.

7. Carlyle – Tiger Automotive – confidential
It was fast-moving Carlyle’s third deal of the year from its maiden $698m Africa-focused fund, closed earlier in 2014. It bought South Africa’s vehicle accessories distributor Tiger Automotive (TiAuto) in November. It partnered with Old Mutual Private Equity (OMPE) to buy the company from Ethos Private Equity. TiAuto operates through 7 divisions, including Tiger Wheel & Tyre, Tyres & More, YSA and Treads Unlimited and primarily distributes branded tyres such as Continental, Yokohama, Michelin, Pirelli, Goodyear, Achilles, GT Radial and Hankook.

8. Stanchart – Sphinx Glass – $180m
Standard Chartered Private Equity backed a deal and partnered with Saudi Arabia’s Construction Products Holding to buy Egypt-based industrial production company Sphinx Glass from Qalaa Holdings (formerly Citadel Capital) in May for $180m. Sphinx Glass operates under license from US-based PPG Industries, a specialist float glass technology provider. Qalaa sold it as part of a strategy to shed non-core assets.

9. Rocket & Kinnevik – Jumia – $148m
Hotshot tech investors Rocket Internet and Kinnevik put another $148m into their consumer shopping platform Jumia in December. US-based private equity investor Summit Partners owns part of Jumia and JP Morgan Asset Management has also previously invested. Jumia owns consumer shopping websites offering branded consumer products as Internet shopping starts to take Africa by storm. Rocket Internet has previously backed Groupon, eBay, Facebook, LinkedIn and Zynga. Watch this space.

10. Carlyle Diamond Bank – $147m
Carlyle’s fourth deal was into Nigeria-based financial services company Diamond Bank, which is a Tier II bank, covering corporate, retail and public sector banking with subsidiaries offering custodian, mortgage, securities and insurance products and services. Kunoch Holdings, the Africa-focused investment platform of entrepreneur and investor Pascal Dozie, raised its holding in the bank from 5.86% to 20.65% in August, buying the additional stake from Actis and CDC Group.

*Rankings based on Preqin data and Private Equity Africa research.