Private Equity News
- Africa is top investment destination for private equity 10 June 2013
EVENT TOMORROW 11 JUNE: Private Equity Africa Awards at The Mayfair Hotel, London – the top event for the African PE community. In the afternoon a limited-space VIP panel discussion on “Strategies for Success: Deal Origination, Valuation and Exits” (14:00-17:00). Awards gala dinner follows from 18:00-23:00. Awards are: Exit of the Year, Portfolio Company of the Year, House of the Year, Deal of the Year (large-, mid- and small-cap categories), Advisor of the Year. For more information and to book places, check the awards website www.peafricasummit.com.
Global institutional investors (“Limited Partners” (LP)) have selected Sub-Saharan Africa (SSA) as the most attractive investment region, according to research from the Emerging Markets Private Equity Association (EMPEA). The leading Private Equity Africa website reports this is the first time the region has beat the leading emerging markets: Brazil, Russia, India and China (BRICs).
According to the press release from EMPEA: “For the first time in the Survey’s history, none of the BRIC markets broke the top three most attractive markets for investment… (The) latest survey of institutional investors reveals that Sub-Saharan Africa, Southeast Asia and Latin America excluding Brazil are poised to see the greatest increase in new private-equity commitments across the emerging markets over the next two years, edging out Brazil, China and India as the most attractive destinations for dealmaking.”
SSA was only 5th in the attractiveness ranking in the 2012 survey. Some 60% of LPs expect returns of 16% or more per year from their SSA investments (68% expect similar high returns from their Southeast Asian investments). According to EMPEA: “Nearly 54% of LPs plan to begin or expand commitments in Sub-Saharan Africa, 49% in Southeast Asia and 46% in Latin America excluding Brazil. Sub-Saharan Africa is poised to see the largest influx of new investors, followed by Turkey and Southeast Asia.”
Southeast Asia and Latin America ex- Brazil came in second and third, respectively, on the attractiveness index. Historically Brazil, China and India have dominated. It is the first time in the survey’s 9-year history that none of the BRICs made the top 3 places on the index. LPs are concerned that there is very hot competition and that prices (entry deal valuations) are very high in countries such as India which is down from 6th to 9th place on the index. The Middle East and North Africa region has dropped to last place. However, Brazil has seen the greatest fall in recent years since being ranked as the most attractive market for investment in 2011.
Read the PEA story, which says that reasons LPs are heading for SSA include the rise in the number if fund managers with track records, the significant investment opportunities, low entry valuations, and fast-growing markets, boosted by strong demographics, economic growth and improved regulation. One institutional investor commented in the survey: “These markets are very attractive because of the growth and greater pool of managerial talent, the development of local capital markets, and the ability to build on lessons learned.”
Nadiya Satyamurthy, senior director at EMPEA, comments: “A growing number of limited partners are now further along in executing their private equity strategies in emerging markets.” he said that many started by aggressively increasing allocations and funneling commitments to the BRIC markets. “Signs that LPs are slowing the pace of their commitments and diversifying beyond the BRICs suggest a maturation of portfolios. We seem to be entering the next stage of growth for the asset class as track records begin to develop across Sub-Saharan Africa, Southeast Asia and parts of Latin America.”
According to PEA’s analysis, SSA’s political risks have also become less of a worry for LPs and only 36% cited this as a deterrent (compared to 66% in the 2012 survey). Investors are also a lot less concerned about the low number of established fund managers (General Partners/GPs) focused on Africa, with only 36% expressing this as a concern, down from 50%. LPs increasingly favour GP teams that demonstrate strong operational expertise in target sectors – a trend across all emerging market regions.
The investors also value the length of the working relationship among GP team members when choosing. However, the LPs are less concerned about the presence of an anchor investor and the names of the other LPs in a fund. For SSA, the LPs continue to favour regional funds, as compared to country-specific funds – a trend observed in other emerging markets regions.
Overall, nearly 60% expect raise their commitments levels to emerging markets up to 2015. The LPs continue to believe that emerging markets private equity will outperform developed regions.
EMPEA surveyed 112 LPs, with disclosed global private equity assets under management of nearly $430 billion and undrawn commitments of over $180bn. The pool included public and corporate pension funds, insurance companies, sovereign wealth funds, banks, asset managers, endowments, foundations, family offices, development finance institutions, multilateral organizations and funds of funds. Here is the link to the full survey.
- Harsh climate for African private equity calls for experienced local guides 13 March 2013
Deals for private equity are getting harder, particularly for larger deals, and there is a “logjam” of funds hunting for cash, according to this interesting article in the Financial Times. Journalist Katrina Manson quotes pioneering Africa investor Miles Morland: “In Africa there are hundreds of deals but you have to go and look for them. In the west, investment bankers bring you deals . . .[but], in Africa, investment bankers are way down the food chain. You need to go and hang around the bars . . . to find the deals,” Mr Morland says.
Everyone has been talking for the last few years about the overwhelming case for investing in Africa, particularly sub-Saharan Africa. The region is growing fast and growth is starting to move from resources to a domestic consumer class fuelled by a giant and fast-growing population. Africa also lags the rest of the world in private equity, it constitutes 4% of emerging markets private equity asset class, compared to 63% for emerging Asia.
The history of private equity in Africa has been chequered. In the 1990s the business climate was still hard and even good investments got hammered by collapsing local currencies. Then came the “noughties” (2000-10) when there were giant returns on some deals, particularly in telecommunications. The sector moved higher on the global radar in 2005 when Kuwait’s Mobile Telecommunications Co (MTC), later renamed Zain, acquired pan-African telecommunications provider Celtel International for an enterprise value of US$3.4bn. Many private equity investors achieved at least 250% return on their investments, and AIG African Infrastructure Fund, managed by a forerunner to Emerging Capital Partners, said in a press release it received approximately $214m, or 4.3x its $50m investment. But other investments were often not performing.
Morland says: “In the current 2007-17 cycle, making money will be harder. An internal rate of return of over 20% will look good. It is a time when careful investors rather than cowboys will do well . . . The phone game is over.”
Meanwhile all the big talking about Africa’s opportunities area bringing a glut of new private equity investors heading to Africa from Brazil, the Middle East and the US, following the big managers who entered in recent years such as Carlyle and KKR. Fundraisers are going for “big ego” funds, writes Manson, with Brazil’s BTG Pactual and others aiming for $1bn and they will be seeking large deals that the continent’s fragmented market can rarely offer. She quotes Marlon Chigwende, Carlyle’s Africa co-head: “When you start going up to writing equity cheques in excess of $75m, there aren’t so many [deals].” Roger Leeds, founder of the Emerging Markets Private Equity Association (EMPEA), says the smarter money is targeting middle market deals worth less than $50m, which he believes have stronger growth prospects: “The fund managers are happy to take investors’ money but it puts tremendous pressure on them to do bigger deals and they’re going to run out. They’re all complaining they’re finding trouble finding deals and they’re competing with each other and driving up valuations.”
One investor also refers to a “traffic jam” of fund managers seeking capital from investors. Data company Preqin says 57 Africa-focused private equity funds (half in South Africa) are looking for $13.1bn. Over the last 2 years emerging market fundraising increased 72% overall to $40bn but fundraising for sub-Saharan Africa fell 3% to $1.45bn last year – well below its peak of $2.24bn in 2008.
However, some investors who do it properly are scoring. Carlyle’s sub-Saharan Africa fund is expected to close above its $500m target in the 3rd quarter, made its first investment in 2012 by taking part in a $210m equity injection in ETG, a Tanzanian agri-commodities trader. Morland’s Development Partners International raised a $500m fund in 2008 and has invested it in 9 deals. It is raising a new fund of the same size.
Manson concludes: “As the African growth story attracts more and more funds, the going is getting tougher. That is one reason why resourceful and locally based management teams matter so much more today than in the past.”
For the full article including views and news from African experts and funds such as Harith, Actis, Ethos and Aureos, now bought by Abraaj Capital from United Arab Emirates, check here for the full article.
- Cauris private equity books into West Africa hotel growth 14 December 2012
A West Africa private equity fund, Fonds Cauris Croissance II, says it will invest 4 billion FCFA (XOF, equivalent to $8 million) in Azalaï Hotels to fund an ambitious expansion programme in the region. The investee company, Azalaï Hotels (www.azalaihotels.com), operates 6 hotels in Benin, Burkina Faso, Guinea Bissau and Mali and is expanding into new countries, including Côte d’Ivoire, Guinea Conakry and Senegal.
Azalaï Hotels is to start building a hotel in Côte d’Ivoire in January 2013 and plans to open late in 2014. The company began operating in 1994 in Mali and has expanded its presence into 4 countries through opening or acquiring 3- to 5-star hotels, according to a press release.
Fonds Cauris Croissance is managed by West African fund manager, Cauris Management (www.caurismanagement.com).
Cauris Investment, the first fund managed by the same manager, previously invested with the Azalaï Hotels group in 1998 to finance the construction of a hotel in Mali and the first regional expansion. Cauris Investment exited in 2006.
Commenting on this new investment, Mr. Mossadeck Bally, founder and CEO of Azalaï Hotels said: “The partnership between Cauris and Azalaï Hotels is a sign of mutual respect between our institutions. Cauris is the private equity institution that best understands the specificities of local entrepreneurs while following its own requirements for commercial returns. After a first mutually beneficial partnership, it is with pleasure that we will enjoy again Cauris’ experience both in hotels and in other sectors.” Azalaï Hotels says it is the first locally owned hotel chain in West Africa to offer services at international standards.
Noel Yawo Eklo, CEO of Cauris Management, said in the press release: “After a first positive experience, we think it is important to support Azalai Hotels in its development programme, especially now that it is about completing the regional mapping and strengthening the profitability of a group composed of very seasoned professionals. The hospitality sector is a difficult one to operate in globally, but it is rewarding as it also creates much-needed jobs”.
Private equity fund manager Cauris Management has been active in West Africa, mainly the francophone countries, for over 15 years. Cauris Management has invested in 42 companies and exited 35 in its target region. The investment portfolio has included agribusiness, financial services, hospitality, telecoms, consumer goods, and downstream oil and gas.
Earlier this year, in March-June, Cauris exited its stake in Petro Ivoire, a downstream oil and gas operator in Cote D’Ivoire, according to this report on Private Equity Africa. The deal was structured as a management buy-back and generated annualized returns of 23% for Cauris which first backed the company in 2006 in a CFA2.2bn deal in partnership with Africinvest. The company was expanding into bottled gas. During the five years the investors were involved, Petro Ivoire grew its network of petrol stations by 33% and is thought to be the third largest operator, and to have 19% of butane gas market after investing in a butane gas filling plant in 2007.
- Africa’s best real estate developer is private equity group Actis 5 October 2012
Leading African private equity group Actis has won the title for “Best Developer in Africa” in the 8th annual global Euromoney Real Estate Survey run by finance magazine Euromoney. To collect data for the award, Euromoney was canvassing the opinions of senior real-estate bankers, developers, investment managers, corporate end-users and advisory firms in over 70 countries since March. It was the biggest Euromoney real estate poll with over 1,900 responses. Actis invests mainly in retail and office developments in high-growth markets such as Ghana, Kenya, Nigeria, Tanzania and Zambia. It launched its first real estate fund in 2006 and concentrates on institutional quality investments. It is sub-Saharan Africa’s most experienced private equity real estate investor and developer, according to a press release.
Current Actis developments include Ghana’s first green-certified building One Airport Square in Accra; East Africa’s biggest retail centre Garden City in Nairobi, and Ikeja City Mall in Lagos which welcomed 45,000 people on its first day of trading in December 2011. Past investments include Accra Mall in Accra and The Junction in Nairobi.
According to the press release, David Morley, Head of Real Estate at Actis, said: “Sub-Saharan Africa has a population of 800 million people and is the fastest urbanising region in the world; an increasingly sophisticated consumer class seek places to live, eat, shop and relax in the face of chronic undersupply. There is tremendous opportunity for those who take up the challenge and we are very proud to see our work recognised in this way.” Euromoney Editor Clive Horwood said, “The winners of this year’s Euromoney survey are those that exhibited the ability to innovate and make best use of the inherent strengths of their organisation. In Africa, in particular, there are great opportunities for those companies best equipped to operate in challenging markets. Through the Euromoney real estate survey, the market has recognised Actis as the leader in this field.”
Nairobi’s Garden City
In July Actis confirmed its investment in Nairobi’s Garden City, a 32-acre mixed use development on the recently expanded 8-lane Thika Highway. This will be a 50,000 sqm retail mall, with commercial premises, 500 new homes and a 4-acre central park, offering family friendly leisure space for Kenyans and visitors to the city. The park will also house an outdoor events arena for the staging of concerts and shows. Groundbreaking is due in December 2012 and completion targeted for May 2014, according to a press release.
Actis is working with leading retailers, including a flagship store for South Africa’s Game, their first in Kenya. Letting is underway with specialist agents Knight Frank Kenya and Broll in South Africa. There are detailed discussions with other foreign retailers looking to enter the rapidly-expanding Kenyan market, such as South African fashion group, Foschini. There is a strong focus on environmental features and the aim is to achieve the first LEED (Leadership in Energy and Environmental Design) certification for a retail mall in East Africa. This brings down operating costs for tenants by reducing electricity and water consumption.
Accra Mall sold
In May Actis confirmed that it had sold its 85% shareholding in Ghana’s Accra Mall to South Africa’s commercial and retail property developer Atterbury and financial services group Sanlam. Actis managed the development process, invested the equity and raised the debt to finance the project, working in partnership with renowned Ghanaian entrepreneurs, the Owusu-Akyaw family. The mall opened its doors in July 2008 fully let, and attracts 135,000 shoppers each week, according to a press release.
Accra Mall is Ghana’s first A-grade shopping and leisure centre, home to international brands such as Shoprite and Game, as well as Ghanaian brands including Kiki Clothing and Nallem. The trade sale demonstrates an increasing interest in Ghana by foreign investors and also reflects the acute demand for high quality real estate assets in sub-Saharan Africa.
Actis 100% owned
Also in May, Actis said it had bought the UK Government’s remaining 40% shareholding in the company. In the deal announced on 1 May, the government will receive a cash payment of US$13m (£8m) and will participate in future profits as Actis’s investments are realised over the next decade. To date, Actis has invested £1.7bn on behalf of the UK government’s direct finance institution CDC and has returned £3.1bn to CDC and by extension the British taxpayer.
Paul Fletcher, Senior Partner at Actis, said: “When Actis opened for business in 2004 our purpose was to attract private capital to countries that were dependent on aid and to legitimise them as investment destinations. Over the last eight years our work in Africa, Asia and Latin America, investing in over 70 companies employing 113,000 people, has shown what is possible. Successive governments have shown real vision backing a private sector model like Actis. We are pleased that HMG has realised the value of their decision to support Actis from the start. We look forward to continuing our work, investing in high quality companies in high growth countries and delivering strong returns for our investors.”
- Voxtra impact fund backs growing seed potatoes in Tanzania 10 July 2012
Voxtra East Africa Agribusiness Fund (www.voxtra.org), a Norwegian social investor, has completed an inaugural investment of US$1.5 million in Mtanga Farms Limited (MFL), a commercial farm in Tanzania which grows seeds, crops and livestock. This is first of Voxtra’s target of 8 to 10 investments targeting companies with pivotal roles in improving the livelihoods of smallholder farmers. The adviser for MFL was the UK’s Lion’s Head Global Partners (www.lhgp.com).
MFL is an integrated agri-business based in Iringa, Tanzania. Its farms on 2,600 hectares of land that was previously farmed but had been long neglected in 2009, when MFL secured its long-term lease of the land. It has made progress in rehabilitating the land and putting in place essential infrastructure. The focus is on high-value seed crops, centred around setting up a seed potato operation providing clean seed potatoes to smallholder farmers across Tanzania. It also works in protein including growing animal feed, livestock breeding and downstream processing of meat. The company is run by a dedicated team of farmers and business developers, and is now recognized as the leading integrated farming operation in the Southern Tanzanian Highlands. Core to the company’s strategy is the provision of improved seed material to local smallholder farmers.
Voxtra’s investment will enable MFL to take its seed potato business to a commercial scale, triple its farmed acreage and significantly ramp up its expanding livestock operation.
Leading impact investors
Several leading impact investors are backing Mtanga Farms, including Thirty Degrees East (Mauritian investment company), Lion’s Head Global Partners, Calvert Foundation (US), Nigerian investment firm Heirs Holdings and its philanthropic arm, The Tony Elumelu Foundation, as well as the African Enterprise Challenge Fund.
African green revolution
According to a LHGP press release: “African agriculture needs a green revolution that is powered by an emerging class of sustainable small and medium enterprises. SMEs are best placed to increase local food production and integrate local farmers into value chains and create employment.” Kim Wahl, Chairman of Voxtra, said: “MFL is a prime example of a business whose commercial success goes hand-in-hand with its social impact. The company is already playing a catalytic role in transforming potato farming in Tanzania, and we are excited about this opportunity to help grow the business.”
In partnership with the Tanzanian Government, MFL recently announced the registration of 4 new potato varieties – the first varieties to be released in Tanzania in 30 years. Whilst potatoes are a major cash and food crop for Tanzanian smallholder farmers, the lack of clean seed material has long been a major impediment to farmers’ productivity. MFL’s clean seed potato will enable a tripling of smallholder farmers’ yields: whereas the national average potato yield is 5-7 tonnes/ha, smallholders have demonstrated yields of 15-20 tonnes/ha when planting clean seed. By scaling up its production of clean seed potato, MFL will provide a pathway out of poverty for a sector employing an estimated 150,000 smallholder farmers.
Voxtra intends to make use of its technical assistance facility – funded by the Norwegian Agency for Development Cooperation (NORAD) – to evaluate, support and increase the social impact made by MFL.
About the investors
The Voxtra East Africa Agribusiness Fund invests growth capital in commercially viable but capital-constrained agribusinesses that play pivotal roles in improving the livelihoods of smallholder farmers. First closing was on 9 November 2011, at NOK 65m (approximately US$12m). Among the shareholders are institutional investors such as Norfund, Grieg International and Kavlifondet, as well as private individuals in Scandinavia.
Lion’s Head Global Partners is a UK-based merchant bank, offering financial advice and fund management with a focus on emerging markets and Africa. For more information, visit www.lhgp.com.
Thirty Degrees East is a private Mauritian-based investment company focused predominantly on East Africa and South Africa.
The Calvert Foundation provides impact investment opportunities that aim to bring a financial return to investors and a social benefit to low-income communities in the U.S. and around the world. A pioneer in the impact investment field, Calvert Foundation investors have created over 528,000 jobs, built over 20,000 affordable homes, and financed over 27,000 non-profit facilities and social enterprises through investment in the Community Investment Note. Learn more at www.calvertfoundation.org.
Heirs Holdings is an African proprietary investment company with a long-term investment horizon in key economic sectors that can propel Africa’s economic development. Heirs Holdings is committed to the economic transformation of Africa through investments that create both economic prosperity and social wealth. For more information, visit www.heirsholdings.com.
The Tony Elumelu Foundation is an Africa-based and African-funded not-for-profit institution dedicated to the promotion and celebration of excellence in business leadership and entrepreneurship across Africa. As a 21st century catalytic philanthropy, the Foundation is committed to the economic transformation of Africa by enhancing the competitiveness and growth of the African private sector. Founded in 2010 by Tony O. Elumelu, MFR, the Foundation identifies and addresses systemic challenges that inhibit African entrepreneurs. For more information on The Tony Elumelu Foundation, visit www.tonyelumelufoundation.org, follow us on Twitter @TE_Foundation or like The Tony Elumelu Foundation Facebook page.
The Africa Enterprise Challenge Fund (AECF) invites private sector companies to compete for investment support for their new and innovative business ideas in agri-business, rural financial services and renewable energy. To qualify for AECF funding, a business idea must have a positive impact on the rural poor in Africa, delivering increased employment, reduced costs, and improved productivity. The AECF runs competitions open only to for-profit-companies. For more information on the AECF please visit www.aecfafrica.org or email email@example.com.”