During the month, there were a number of high profile exits that helped alleviated fears that Africa fails to offer attractive exit options for investors. Emerging Capital Partners exited La Nouvelle Societe d’Assurance Participations SA (NSIA), a West and Central African insurance group, through the sale of its 26.2% stake to the National Bank of Canada and Amethis Africa Finance. Additionally, global alternative asset manager, The Carlyle Group, announced its intention to sell its current minority shareholding in Export Trading Group (ETG) to the company’s management team/founders, representing Carlyle’s first exit in the continent.
In July, major PE deals that made headlines were African Alliance Asset Management investing in logistics firm Atlas Development and Support Services by purchasing 4.3 mn shares, at a price of Kshs. 11.0 per share, to take total ownership to 23.7 mn shares, representing a 5.5% stake. This is an example of a quoted private equity transaction. Adenia Partners, a private equity firm investing in Sub-Saharan Africa, also announced an investment in Cresta Paints based in Ghana, an auto-refinish and industrial coatings manufacturer by partnering with the company’s founders, Mr. Abhay and Mrs. Pradnya Salunkhe through Adenia Capital (III), a USD 125 mn fund closed in February 2012.
The objective of the partnership is to pursue growth opportunities linked to exports, international expansion, product development and implementation of the best and most efficient industrial practices. Adenia plans to offer support in strategic and financial advisory and use its vast network to source new business opportunities for Cresta.
This month’s activities reaffirms that Africa has great prospects for private capital to propel economic growth, and is increasingly becoming attractive to foreign investors. Factors attracting foreign participation in the alternative markets are:
- Positive demographics driven by both a young population and rapid urbanisation,
- A growing middle class that provides a ready market willing to spend on consumables and essentials,
- Availability of deals due to an increased number of businesses seeking alternative channels of raising finance, and
- Ability to exit, which is key for PE investors.
Deep, active and vibrant private markets, (such as private equity, venture capital, quoted private equity, and structured products) are critical for economic growth, and this is an area that the country needs to aggressively develop.
Generally, the key challenges facing investments in private equity, and private markets in Africa, has been:
- Limited local talent and experience with the asset class. This is being addressed, as more entities such as Cytonn, Centum, Fusion Group, Ascent Capital founded by David Owino, and Fanisi, all locally driven, focus on the asset class.
- Deal size has been historically an issue since most global private equity funds focus on only huge deals with minimums of around USD 25 to USD 50 million per transaction. However, the emergence of local players is filling the gap. For example, at Cytonn, we will do deals as low as USD 1.5 million. We believe that emergence of local players fill a critical gap.
- Lack of appreciation for the importance of private markets.