More than 45 Africa-focused private equity funds are looking to raise USD 12 billion funds to invest in the continent, according to a report by the African Venture Capital Association and Ernst & Young.
Africa-focused PE funds have raised USD 4.7 billion since 2007 as the investing world woke up to the opportunities in Africa. Fund-raising picked up especially in 2010 and 2011 when PE managers raised USD 2.4 billion and USD 3.3 billion, respectively.
The industry was less buoyant last year, raising USD 1.1 billion in 2012 as the global economic conditions deteriorated.
"Despite a difficult 2012, the long-term outlook for fund-raising for the region remains strong," the report noted. "Although funds are taking longer to raise across the globe, there are a significant number of funds currently on the road that are likely to close in 2013."
Confidence high in Africa
Limited partners (LPs) also remain optimistic about investing in the region, with 41% planning to expand or start their first investments in the region, according to the survey.
The Sub-Saharan Africa region is in the midst of rapid transformation and becoming increasingly relevant to the global PE sector. The industry has raised its profile from a handful of South African-based groups and others based in UK to a flood of new players, with the big hitters also paying closer attention.
According to financial services research company Prequin, many new players entered the market in the last four to seven years.
"In 2004, six first-time fund managers held a close on their fund, and by 2008 the number had risen to 13. In 2012, 14 first-time fund managers had seen their funds closed," the report noted. "In October 2010, 52% of funds on the market were raising their first fund and 21% were raising their second fund, demonstrating confidence in African PE against a backdrop of global economic uncertainty."
Carlyle Group is the most well-known global private equity firm to set up shop in Africa, with offices in South Africa and Nigeria, and raising around USD 500 million.
Launched in 2011, the Africa Buyout fund plans to invest in Sub-Saharan Africa with a particular focus on South Africa, Nigeria, Kenya, Tanzania, Ghana, Mozambique, Botswana, Zambia and Uganda.
The group sealed its first investment with a USD 210 million stake in Tanzania's Export Trading Group.
Meanwhile, other PE players are circling around the region with Brazil-based BTG Pactual looking to invest USD 1 billion in Africa.
Funds are focusing on key sectors, which underscore greater maturity in the market. The industrial sector attracted 26% of PE investments with consumer staples-focused funds attracting 19% of monies raised.
Private equity uptrend
Meanwhile, PE investments also rose from USD 1.6 billion in 2010 to USD 2.7 billion in 2011, although it fell to USD 1.2 billion last year as global investor sentiment soured.
E&Y expects plenty of upside as African countries have a long way to go before PE investments can match those in other emerging markets.
"As a percentage of GDP, PE now represents 0.12% in South Africa compared with 0.10% in Brazil, 0.14% in China, 0.33% in India, 0.75% in UK and 0.98% in the US," according to EMPEA and E&Y research.
"Countries such as Ghana, Kenya, Ethiopia, Uganda, Tanzania, Zambia and Angola have fairly sizable economies that are less penetrated by PE and are therefore becoming increasingly attractive."
PE investors are also drawn to Sub-Saharan Africa as the region's financial markets remain ineffective and don't capture the true growth occurring in the area.
There are 17 operational stock markets in the region, with only South Africa's Johannesburg Stock Exchange (JSE) considered internationally recognized with a strong regulatory framework.
"Given the shortcoming of listed markets, investors with a long-term focus are looking to private equity to supplement their African equity exposure," says RisCura Fundamentals, a PE-consultancy based out of Cape Town in South Africa.
"While private equity has its own shortcomings, it has the great advantage of being able to access companies outside of the narrow confines of listed markets, giving investors a wider exposure to sectors and to companies at different stages of development."
While PE investors have been entering the region in droves, exits have been flat over the past two years. There were 15 exits per year between 2010 and 2012, usually to strategic local or regional buyers.
"Multinational corporations, on the other hand, have tended to stay away from countries with higher perceived risk profiles in the past," E&Y said.
"However, this is changing as multinationals from developed and other emerging markets look to capitalize on Africa's growth by making acquisitions within the region."
© alifarabia.com 2013
