Africa was once seen as terra incognita
when it came to private equity. If Brett Mallen, chief operating
officer of Sanlam Africa Investments, is correct, that view is wildly
“Given the wall of private equity money coming in, I don’t think I
will see in my working career all that money placed,” Mr Mallen said at a
recent conference. Given that he is only 38, this may be problem.
Mr Mallen says his comment was a little tongue in cheek, but the data back up his central concern.
Private equity firms raised $4.2bn to invest in Africa last year,
more than double the average for the preceding five years, according to
data from the Emerging Markets Private Equity Association (EMPEA).
The pace hotted up still further in the first quarter of this year,
when a further $2.2bn was raised, led by Helios Investment Partners,
which closed the first-ever $1bn-plus Africa-focused fund, and the
Abraaj Group, which was a fraction behind at $990m.
Yet just $2.4bn was actually invested last year, and only $500m in
the first quarter of this year. A time lag between raising capital and
putting it to work is perhaps inevitable, but given that the larger
funds will increasingly be looking to target larger investments, of
$100m-plus, some doubt whether a suitable flow of opportunities will
“Because they all raised such large funds they are going to have to
participate in writing large cheques, but there aren’t many large
companies in that space,” says Mr Mallen, who says that in Africa
private equity funds have little choice but to focus on smaller,
Sanjeev Dhuna, a partner in the banking practice of law firm Allen
& Overy, shares this concern, saying private equity groups are
hunting for diversified, pan-African companies with high quality,
“enlightened” management, but these are thin on the ground, outside of
the financial services industry.
is a lot of liquidity in the market at the moment. A lot of people are
chasing deals and there is a lot of capital swilling around. But it’s a
developing story for private equity because the type of companies they
want to invest in don’t really exist [in Africa] as they do in the US or
Europe. They are looking for the needle in the haystack,” he says.
Given the relative paucity of suitable ready-made companies to buy,
Mr Dhuna says the private equity industry instead needs to work with and
“nurture” family-run businesses.
Perhaps unsurprisingly, Jacob Kohli, a partner at Abraaj, does not believe the volume of fundraising is a problem.
“It’s true a lot of money is being raised, but a lot is being
deployed as well.
I see a good number of opportunities for the amount
being raised, and probably even more. The whole asset class is very
young,” says Mr Kohli, whose house this week bought a majority stake in
Mouka, a Nigerian mattress manufacturer.
Mr Kohli says the younger members of many business families have been
educated in the US and Europe and are more open than previous
generations to accepting outside capital in order to modernise their
operations or expand beyond their home market.
Nevertheless, a report co-authored by Allen & Overy and Global
Counsel, a strategic advisory firm, in April found that more than half
of all African private equity investment since 2007 had been in the
telecoms, consumer and financial services sectors as the industry
targeted the rising disposable incomes of Africa’s growing middle class.
But “given the scarcity of these opportunities on the continent,
entry values for attractive assets have been pushed up”, the report