Investing from the Cape to Cairo
Africa Capital Digest’s Editor & Publisher, Allan Cunningham, provides his monthly summary of the deals and activity that’s helping to drive fundraising across the continent.
The pace of fundraising for private capital investments in Africa showed no signs of decelerating in early April. Perhaps it was the momentum spilling over from the first three months of the year, which, as you may remember, saw some $1.5 billion raised for Africa-focused funds. By the middle of April we’d seen another $529 million in interim and final closes held and launch announcements totaling some $735 million made. But by late April and early May, a fundraising slowdown set in.
Catalyst Principal Partners kicked off April with a $103 million interim close for their second fund. The Nairobi-based private equity firm raised the capital from a mix of Africa-focused fund-of-funds, development finance institutions and regional family offices, all of whom had backed Catalyst’s first fund. The target of an IRR of 25% earned following the same strategy as the first fund seems to have done the trick. By final close, Catalyst wants $175 million to put to work in their particular sweet spot--making growth capital investments within fast growth consumer demand-driven sectors across Eastern Africa.
Another fund promising to follow a similar strategy as its predecessor fund also held a first close in early April. And again, they’re ultimately looking for much more money. Frontier Investment Management, a Danish private equity firm held a $116 million first close for its second fund. DFIs featured largely among the initial LP base with several re-upping from Frontier’s €60 million first fund. Targeting an IRR of 20%, Frontier Energy II is looking to hit a total of $200 million by final close in early 2018 to back greenfield renewable energy projects across the sub-Sahara.
The largest fund close was a final close and although it actually closed in late February, the news wasn’t relayed to anyone until early April. The Momentum Africa Real Estate Fund or MAREF raised $170 million from an 18-strong investor group to build a portfolio of office blocks, shopping malls and warehouses in sub-Saharan Africa, ex South Africa. The fund’s already deployed 23% of its capital in three commercial real estate deals in Mauritius and Ghana.
Conversely, deal activity, which was somewhat subdued at the beginning of April, started ticking upwards in the middle of the month. Catalyst Principal Partners have been having a busy time of it. Having held a first close for their second fund in the first week of April, they made the last investment for their first fund in the first week of May. And then the first deal for their second fund two weeks later. For the ninth and final deal for their first fund, the private equity firm took a significant minority stake in a fifty-year old Kenyan conglomerate, Kensta Group. The group has built significant businesses in the region’s printing and packaging, office automation and IT managed services sectors and has operations in five East African countries.
Catalyst’s maiden investment for its second fund couldn’t have been more different. An outright acquisition of a business unit from a family-run company and the hire of a senior industry executive to head up the business for them. The investment in question is Jambo Biscuits, the well-known producer of Britania-branded products in East Africa, which Catalyst has been acquired from the Dawda Family. As well as an injection of working capital, Catalyst has appointed Robert Kagundah as CEO. He’s worked in multiple African markets managing regional FMCG businesses, including The Coca-Cola Company.
Staying with the FMCG theme, Ethos Private Equity led a deal to acquire a majority stake in Little Green Beverages, a producer a variety of drinks products under the Refreshhh! brand. Nedbank Private Equity and the company’s management are also backing the deal. The transaction is the ninth for Ethos’s sixth fund and joins a portfolio of diverse assets that includes Autozone, Twinsaver, Eazi Access and Neopak.
One of those assets, Twinsaver, made its very own acquisition in May, agreeing to acquire Sylko, a seventy-year old supplier of disposable and recyclable household products in South Africa. It was the second deal of the year for the Ethos-backed company, which has expansion and positioning itself as a large-scale FMCG business as key planks to its strategy.
Heading north, Investec Asset Management made its fifth deal for its second fund in April, buying Grupo San Jose & Lopez from two other private equity firms, AfricInvest and Mediterrania Capital Partners. The price paid remains undisclosed, but it’s safe to assume that the sale of the North African freight business earned the sellers a nice return as the company’s revenues grew by 38% during their ownership periods and its EBITDA tripled. Investec’s bet is that the company’s growth trajectory will continue.
Tech-related deals also made headlines, especially in May. GetSmarter, a provider of online executive education courses, was acquired for $103 million in an all cash deal by 2U, a NASDAQ-listed education company. Founded by the Paddock brothers, GetSmarter has largely been bootstrapped since launch, and will continue to operate as a standalone subsidiary once the deal completes in July.
In the enterprise-facing tech market, Synergy Capital is acquiring the Nigerian and Ghanaian subsidiaries of Dimension Data, an information technology services company based in Johannesburg that’s owned by NTT. The transaction adds a third ICT asset to Synergy Private Equity Fund’s portfolio, and the new portfolio company plans to expand its footprint more broadly across West Africa by adding virtual computing services with local points of presence in Côte d’Ivoire, Liberia and Sierra Leone.
Finally this month, as everyone knows, the need for broadband infrastructure in Africa’s cities is acute. Google has marshalled capital commitments from Convergence Partners, Mitsui & Co and the IFC to invest $100 million to CSquared, a broadband infrastructure company building wholesale metro fibre optic networks on the continent. By combining capital and technical knowhow to deploy and operate existing and planned networks, it’s hoped that costs will be lowered, roll-outs will be quickened and the price of services to the end consumer will be minimized.
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