31 Oct

Private equity: Consumer staples a prominent theme for investors

Africa’s consumer-driven sectors, which includes agribusiness and food production, attracted strong interest from private equity investors in the first half of 2017, according to recent data by the African Private Equity and Venture Capital Association (AVCA).

Private equity firms typically try to improve the financial results and prospects of the companies in which they buy a stake, in the hope of reselling the business to another firm or cashing out via an initial public offering (IPO). The value created is then passed on to the investors in the fund.

“Consumer staples (including investments in the African packaged food industry) saw a rise relative to 2016. Telecoms and materials also showed an increase in terms of deal values as a result of a handful of large transactions in the first half of 2017,” says AVCA in its latest African Private Equity Data Tracker report.

The total value of disclosed private equity investments over the period was $1bn, with the median deal size about $15m. Some 68% of the total deal value was from private equity transactions between $100m and $250m in size.

Tapping into Africa’s agribusiness and food opportunity

One prominent agribusiness transaction during the period was an investment by Sahel Capital, managers of the Fund for Agricultural Finance in Nigeria (FAFIN) and CardinalStone Capital Advisers (CCA), in Crest Agro Products, an integrated cassava processor based in Nigeria’s Kogi State.

Cassava is a woody shrub with an edible root resembling a large sweet potato. It is widely grown in many parts of Africa, predominantly by small-scale farmers. Although cassava roots can be processed into a variety of products – including cassava flour, starch, ethanol and glucose syrup – the crop has not been a great commercial success in the continent.

Crest Agro’s aim is to become a major producer of food-grade cassava starch for industrial users in Nigeria and the broader West Africa sub-region. There is a strong demand for starch in the fast-moving consumer goods, brewing and pharmaceutical sectors. It is expected that as the Nigerian middle class grows and more companies look to enhance their ability to source raw materials locally, this demand-supply gap will widen substantially.

A major food-industry deal during the first half of 2017 was the tie up between Africa-focused private equity firm Helios and Barcelona-based multinational GBfoods, to create GBfoods Africa. The new entity has acquired assets from different African companies, including brands such as Jumbo (bouillon), Gino and Pomo (tomato paste), and Jago (milk powder and mayonnaise), as well as Bama (mayonnaise) distribution rights for Africa.

Read more: How We Made It in Africa