From Lagos to Luanda: private equity's next big job market is Africa

When Mark Mobius talks, markets listen, and Templeton Asset Management’s executive chairman has tapped private equity in Africa as the route to the continent’s economic growth.

The septuagenarian says Angola, Zimbabwe, Senegal and Sierra Leone are all attractive prospects, even if working in these countries is not for the faint-hearted, given their political and social issues. But given the slowing private equity market in Asia, and  fierce competition in the US and Europe for jobs, Africa could be your best bet.

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Mobius is far from being the oracle of Africa: others have already seen the opportunity and have raised significant buyout funds. Industry experts say that hiring to find and make deals with these war chests can’t be far behind.

Africa’s main source of private equity activity continues to be its largest economy, South Africa. The recent annual KPMG/South African Venture Capital Association (SAVCA) survey reports that the local private equity industry added 10.4% to its total funds under management in 2012, which closed at R126.4 billion (USD$12.4 billion).  The 2012 growth surpasses the previous four years' combined cumulative growth of only 4.6%.

SAVCA CEO Erika van der Merwe says hiring has been pretty stagnant in recent years due to the global financial crisis. The KPMG survey reveals that the total number of investment professionals dropped to 500 in 2012, from 574 at the end of 2011, largely due to attrition.

New funds need new people

But she says the spate of new fund raising suggest that private equity firms will need to staff up soon to look for deals. One of the country’s largest and most established firms, Ethos, which has just raised a major fund, is hiring a team of graduates for its 12-month analyst programme, while there are also a small number of vacant roles in other businesses.

Private equity in the rest of Africa is picking up too, and Van der Merwe says South African companies are going into the continent after deals. Last week the Financial Times reported that Johannesburg-based Vantage Risk Capital had made its first investment in West Africa, and only its second transaction outside of South Africa, with a USD$$30m mezzanine capital investment in Genser Energy’s Ghana operations.

Another SA firm, Metier, is expanding its southern Africa portfolio, according to the FT, and SA-based banks Investec and Standard are investing in private equity off their own balance sheets. Other funds cited by the paper with private equity interests in Africa include Phatisa, which has investments in Sierra Leone, the Democratic Republic of Congo, Zambia and Cote d’Ivoire.

These funds are increasingly being joined by domestic buyout firms in a number of sub-Saharan countries, particularly in east and west Africa.

“It is still fledgling but we are seeing huge appetite for growth, ”says Van der Merwe.

These companies need talent, and the obvious place to start, she suggests, is among Diaspora communities. “Bringing back nationals who have developed market experience yet who understand local culture and have the networks is one option.”

Funds proliferating in African countries

Global law firm Hogan Lovells reports in a recent white paper on doing business in Africa that there is a "proliferation of private equity funds at country level" looking to invest relatively small amounts per deal, often sub-USD$20 million. Larger regional funds may go up to five times that size and over. “In most of Africa, (funds) are still delivering internal rates of return of more than 20%, even if deals may take double the normal five-year timetable to mature.”

The London-based African Venture Capital Association (AVCA) says in 2012 deal value reached USD$1.1 billion with East African’s firms taking the lion's share.  The first quarterly report of the Cambridge Associates African Private Equity and Venture Capital Index, which is a new index of institutional-quality private equity funds in Africa, shows that they outperformed US venture capital and for earlier 10-year periods, outperformed the 10-year emerging market benchmark. In the year to September 2012, these funds posted an 11.2% annualised return.