Private equity: Europe's loss is Africa's gain
The sovereign debt crisis has reduced deal activity, banks provide funding reluctantly and on less favourable terms, many transaction have collapsed: in short, private equity in Europe is suffering. Deals activity fell by almost 30% in Q3 2011 and, given market turmoil and low confidence levels, this negative trend is set to continue.
Europe's loss seems to be Africa's gain, however, as many international investors are turning to the continent and are lining up to fund deals in growth sectors. In March, global giant Carlyle announced the launch of its sub-Saharan Africa fund and opened offices in Johannesburg and Lagos. Since then others have followed. "We are seeing increased appetite by large global private equity firms for investments in Africa, which is a natural choice," says Graham Stokoe, Africa private equity leader for Ernst & Y oung.
Last year private equity funds raised $1.5bn in Africa, a 55% increase over 2009, but this year is set to register an even more dramatic rise. According to Emerging markets private equity association (Empea) data, Africa now makes up 10% of global emerging markets fundraising figures, compared to less than 10% ten years ago.
Standard Bank, the continent's largest bank, predicts that private equity funds will form the bulk of investment flows into Africa over the next year. "Opportunities in emerging markets, and sub-Saharan Africa in particular, are expected to fuel a pipeline of deal activity over the next twelve months," says Brian Marshall, Standard Bank's director of diversified lending and leverage. "We are already seeing through our presence in Africa a flurry of activity on the continent from PE firms which are increasingly showing an interest to invest in sub-Saharan African assets. Africa has turned into the place to be for many investors seeking growth markets."
Actis, for example, a PE firm which only focuses on emerging markets, has 43% of its investments in Africa. Local companies do not want to be left behind and are beefing up their teams to compete with the newcomers. Helios Investment Partners, an independent PE firm, has recently successfully closed a $900m mega-fund, the largest Africa-focused PE fund in history. South African private equity firm Medu Capital, which specialises in small and medium-size companies, predicts growth in the mining sector and in coal-fired power stations.
The growth is creating jobs: "There has been no dedicated focus on Africa and we are now looking at a team that will focus on growing market share on the continent," says director Ernest January.
