From the Cape to Cairo – the standout deals of early 2017

Africa Capital Digest’s Founder & CEO, Allan Cunningham, shares views on the most interesting and influential deals taking shape across the continent during the first quarter of the year…

Since the first outing for this column neatly coincides with start of April, we thought it’d be a good idea to use our space to touch on some of the more notable happenings that took place in Africa’s private capital investment sphere during the first quarter of the year. By “happenings” we’re referring to the deals that were done, the funds that were raised and the people who moved jobs or otherwise popped up in new industry roles.

If there was a standout category for the quarter, it was fundraising. A quick back-of-the-envelope calculation finds closes totaling $1.5 billion held for Africa-focused funds. That’s not counting the Africa component of Actis’ rapidly-raised fourth energy fund which hit its $2.75 billion hard cap earlier this month. If you assume, (always dangerous, we know), that the emerging markets fund manager will allocate the fund’s capital proportionally amongst its platforms, that bumps up the total for Africa to almost $2.2 billion. That’s a strong start to the year.

The single biggest amount of capital raised exclusively for continent-related investments came to us courtesy of Canadian insurer Fairfax Financial Holdings. They’ve secured $500 million in commitments for Fairfax Africa, a new investment holding company that’ll back both listed and unlisted opportunities that need either equity or debt, and perhaps both.

Apis Partners did well with its inaugural fund raise. The financial services investor handily beat the target for its first private equity fund, landing some $287 million in capital commitments in time for its final close held during the first week of March. They’ve already put $130 million to work in 5 deals since their first close, and while the fund’s focus is on businesses that improve financial inclusion in both Asia and Africa, a representative told us that the fund’s remaining investment strategy has a “a leaning towards Africa.”

Sub-Saharan Africa remains the destination of choice for many of these new funds. In fact, for two of them, their fresh capital stashes herald first forays into the region. The team at Gulf Capital, who have historically focused on opportunities in the MENA region, raised $250 million for their second debt fund in January. It’s expected that their first investments will be made in West Africa before expanding across the rest of the Sub-Saharan region. Capital Trust, another MENA-focused manager, is also expanding its horizons south of the Sahara. With $150 million in hand for EuroMena III, they’ve an aggressive deployment schedule, estimating they’ll have fully invested the fund by the end of the year.

Staying in the realm of “firsts”, an American private equity manager made its maiden investment on the continent during the quarter in the month. TA Associates, who, as some of you may know, is one of the more high-profile private equity firms in the USA, dipped its toe into Africa’s deal stream for the first time a couple of weeks ago. The Boston-based firm relieved Helios Investment Partners of some of their stake in Interswitch, the Nigerian digital payments company around whom some speculated would become Africa’s first startup to achieve tech “unicorn” status in an IPO that failed to materialize in 2016. Helios still retains the largest stake in the firm.

We were reminded of the potential returns investors can enjoy on the continent in early February on the heels of an announcement that two of South Africa’s largest private equity exits, historically speaking, had completed. The sales of Safripol and Tsebo Group earned Rockwood Private Equity around R9.4 billion (approximately $708 million at current exchange rates) in gross exit proceeds, helping them achieve an aggregate IRR of more than 23% in the process. Safaripol was sold to KAP Industrial, a trade buyer, whilst Tsebo Group was sold to Wendel Group jn a secondary private equity transaction.

Hardly had the streamers been packed away from the party to officially launch Arise, a new $660 million financial services private equity investment platform formed by FMO, Norfund and Rabobank, when they announced they were acquiring Development Partners International’s 27.7% stake in Ghana’s publicly-listed CAL Bank. How much they paid remains under wraps, but it’s a safe bet that DPI enjoyed strong returns on the deal, given that the bank’s share price has jumped by 200% on the back of an annual rate of post-tax profit growth of 77% between 2011 and 2015. DPI first bought into the company as a member of an investors consortium in 2012.

The Carlyle Group now owns more than 50% of GCR, Africa’s largest credit rating agency following the acquisition of stakes held by the company’s founders and DEG, the German development finance institution. The firm’s 20-year track record of success was a significant enticement for Carlyle as well as the possible expansion synergies offered by their ownership of DBRS, a Toronto-based credit ratings agency they bought in partnership with Warburg Pincus in 2015.

Towards the tail end of last year, Marlon Chigwende who’d led Carlyle’s operations in Africa jumped ship to launch Arkana Partners, his own private equity firm. That move, in combination with Standard Chartered’s rumored Africa private equity troubles, fueled speculation that the larger private equity managers were struggling to deliver investor returns on the continent. But Carlyle, at least, appears to have every intention of staying the course. Just last week, they appointed seasoned Africa investor Dele Babade to be an advisor for their investment team on the continent. And, as we go to press, it’s just been announced that they’ve made their made their largest transaction in Africa to date, spending $587 million to acquire Shell’s onshore assets in Gabon.

That’s it for this issue. We’re very interested to hear what more you’d like to read about in this column every month, so please let us know. We always appreciate good fodder for future installments.