By Peter OBIORA InvestAdvocate
Lagos (INVESTADVOCATE)- Private equity investors have dumped South Africa for Nigerian and Kenya, a Bloomberg report said on Tuesday.
The report says buyout firms are increasingly targeting markets such as Kenya and Nigeria, where expansion this year is forecast by the International Monetary Fund (IMF) to be more than double that of South Africa.
“Almost all the growth is outside South Africa’s borders, which was spun out of Barclays Africa Group Ltd. in 2013. “The shift from South Africa to the rest of Africa also means the way exits happen will change. You could use listings in London if you get to scale in Africa,” the report quoted Andrew Dewar, managing partner of Johannesburg-based Rockwood Private Equity (Pty) Ltd in a February 13 interview.
According to the report, South Africa’s economy is being hobbled by power shortages, with the state-run utility rationing electricity for 11 days so far this month, helping to push the rand to a 13-year low.
The report says returns for buyout firms in the country have been shrinking for a decade and lag behind the benchmark stock index.
It quoted Andrew Roux, founder of Ethos Private Equity Ltd. in Johannesburg as saying, “we used to get a net IRR of 30 percent; now it’s about 18 to 20 percent,” he affirmed. Referring to the annual net internal rate of return of buyout firms; benchmark for measuring the success of deals.
South Africa is coming third on the most attractive region for buyout firms behind West Africa and Sub-Saharan Africa, it quoted an African Private Equity and Venture Capital Association report released last year.
The report disclosed that Nigeria has attracted U.S. private equity firm Carlyle Group LP, the world’s second-largest manager of investment alternatives to stocks and bonds, which invested $147 million for an 18 percent stake in Diamond Bank Plc and said it would spend as much as $200 million in a second Nigerian company this year. “Other targets for the firm include Ghana and Ivory Coast in West Africa, Carlyle said in November,” the report quoted Carlyle as saying.
In the same vein, the report said that Swiss Re AG was lured to Kenya in October when LeapFrog Investments, a private equity firm that focuses on Africa and Asia, sold a minority stake in Kenya’s Apollo Investments Ltd. LeapFrog paid 1.68 billion shillings ($18 million) in November to gain control of Kenya’s Resolution Insurance and tap growth in health coverage in that country.
It said Stuart MacKenzie, Ethos chief executive officer has named Nigeria, Kenya, Ghana, Zambia, Mozambique and Angola as the countries Ethos is looking to for expansion opportunities for its investments.
MacKenzie further affirmed that South African corporates are going north in search of growth and part of our strategy is to take our investments there. “Ethos is targeting logistics, consumer, business and industrial services companies, he said.
Similarly, the report revealed that AutoZone, an automotive-parts retailer sold by RMB Corvest and Zico Capital to Ethos in January, has expanded into Namibia, Zimbabwe, Swaziland and Botswana.
Also, it added that Tsebo Outsourcing Group Ltd., controlled by Rockwood, has expanded from South Africa into countries including Namibia, Botswana and in 2013 won its first pan-African contact from Barclays Plc to manage 2,000 sites across 12 countries.
While EnviroServ Holdings Ltd., Rockwood’s waste-management company, has expanded into 15 countries outside of South Africa.
The report quoted Peter Baird, head of Standard Chartered Plc’s buyout unit in Africa as saying that “Our portfolio is 90 percent outside of South Africa. We’re finding loads of good investments outside of South Africa. There’s lots of talk of a wave of capital washing over African private equity.”
The Southern African Venture Capital and Private Equity Association revealed that as much as $50 billion allocated to private equity in Africa has yet to be invested and the report says Rockwood’s Tsebo may tap into that cash as the firm prepares to sell its investment by year end. “There have been as many as 40 approaches for Tsebo, many from other buyout companies, according to Dewar.
