17 Nov

African private equity managers ride out the storm

When one of the biggest names in African private equity snaps up a fast-growing chain of coffee shops, it’s a clear sign that investors are focusing more on Africa’s growing middle class and consumers, particularly after the currency chaos and commodity volatility of recent years that clobbered returns across much of the region.

The Abraaj Group, which has invested $3.2 billion in more than 80 companies in Africa over the last two decades, bought Java House in July for around $100 million from rival private equity group Emerging Capital Partners and Kevin Ashley, the Nairobi-based chain’s executive chairman. ECP received 12 non-binding bids – another sign of investor interest in this sector – for the coffee house chain, which started up in Kenya and later expanded into Uganda and Rwanda.

Some of the most successful PE-backed firms in Africa are concentrating on companies that can benefit from strong demand either in their home markets from domestic consumers or from overseas buyers attracted by a weak exchange rate.

Ethiopia’s Afriflora Sher, for example, owns the world’s biggest rose farm and exports roses and tulips to Europe. In 2014 KKR, the giant global PE manager, invested up to $200 million in the business to finance expansion. Catalyst Principal Partners, which is headquartered in Nairobi and administers a $125 million private equity fund called Catalyst Fund I, was attracted by the export strength of Chai Bora, Tanzania’s leading tea packaging firm, when it acquired 95% of the firm’s equity from TransCentury, a Kenya-based investment holding company, in 2013.

Another good example of an investment driven by the potential for exports is the $151 million acquisition of Vlisco Group, the Netherlands-based textiles manufacturer and retailer, by Actis in 2010.  Actis is one of the region’s biggest PE managers and has invested $3.5 billion in 70 companies in Africa, of which more than 50 have been exited.

Full article: African private equity managers ride out the storm