Sunnier outlook for private equity in Africa
Private equity is not a happy place to be. Investors' appetite has dropped to six-year lows, fundraising has fallen by almost two thirds and new fund raising targets are being scaled back.
Around the world, not many PE companies are in the mood for hiring, but there are signals that Africa could be the exception.
"We are cautiously optimistic about the investment outlook in Africa," says Nathan Mintah, a partner at Kingdom Zephyr in Johannesburg. "Africa was growing relatively faster than other regions before the crisis hit. Now it has slowed down but to a lesser extent than the rest of the world. When the global downturn eases, I am convinced that Africa will recover relatively faster."
Kingdom Zephyr is an African-focused private equity house with offices in Johannesburg, Accra, London and New York. The biggest investor is Prince Alwaleed Bin Talal, a member of the Saudi Royal Family whose holding company, Kingdom, has assets in excess of $24bn. Its Africa division has already made three large investments within the last nine months, one in Mixta Africa, an affordable housing developer, one in Buildworks, a South African building materials and power infrastructure company and another in a tuna canning and export company based in West Africa.
"We are targeting financial services, energy, telecommunications, mining and resources and agroindustry, says Mintah. "We intend to expand our team as our investment activities require. We are about to add a portfolio manager to our team to be based in Accra. We look among the African diaspora abroad and find that there are many highly qualified and experienced people who want to return. We give them an opportunity to come home and participate in Africa's renaissance."
In South Africa the private equity industry breached the R100bn mark for the first time in 2008, despite the global crisis. According to the annual Industry performance survey just released by KPMG and the South African Venture Capital and Private Equity Association, funds under management relative to GDP have reached 3.2%, higher than the 2.8% recorded in 2007. The global average is 2.7%.
"These figures are a positive reflection on the achievements of the South African PE industry," says Warren Watkins, KPMG's head of PE markets for Africa. "We currently appear to be better off than other PE markets, partly due to limited credit crunch exposure."
Africa still accounts for a minuscule proportion of global private equity, but the market is growing and companies' investment model is more sustainable, as it does not rely on debt.
"Unlike many US and European funds we do not use leverage in our investments," says Mintah. "We mainly invest expansion capital and do not use debt to complement our equity investments, so we are not as affected by the lack of credit in the market, although of course our portfolio companies, like other companies, may be affected as they do require debt in their normal course of business."
