Investec Africa Fund II attracts US investors

Investec Africa Private Equity Fund 2 closed on $295m, almost double the size of its predecessor.

Investec Asset Management’s second Africa fund closed on almost double the size of its previous vehicle and included US investors for the first time.

Investec Africa Private Equity Fund 2 (IAPEF 2) closed on $295 million, with African investors accounting for 44 percent, Europeans for 41 percent and US investors for 15 percent, including re-ups.

Investors in IAPEF 2 include the UK development finance institution (DFI) CDC Group, which committed $40 million, according PEI Research & Analytics, while Dutch DFI FMO invested in the vehicle’s predecessor, Investec Africa Frontier Private Equity, a 2008-vintage vehicle that raised $155 million.

Like its predecessor, IAPEF 2 will target investments across north and Sub-Saharan Africa, excluding the East African Community, which includes Burundi, Kenya, Rwanda, Tanzania and Uganda.

“We are driven by the specific opportunities at hand, as opposed to top-down macro allocations. We are invested in both the larger and well-known markets such as Nigeria and South Africa, but we have also been investing in small markets like Mozambique. We have full exposure to the Africa growth story,” said Investec Asset Management head of private equity Francois van der Spuy.

IAPEF 2 aims to undertake up to nine transactions, while Fund I is fully deployed across seven investments.

Both funds target the consumer sector, including consumer-facing and business-to-business segments, but do not invest in the prime resource extraction sector, such as upstream oil and gas.

“We see interesting opportunities in retail, in logistics and we are seeing interesting things in insurance. These are some of the areas where we are seeing some interesting deals,” van der Spuy said.

The new fund will pursue deals in the range of $15-40 million, up from $10-30 million targeted by its first vehicle, although it can invest up to $100 million and has looked at once such deal. “That [range] matches the opportunities we see,” said van der Spuy.

“The market to some extent has been maturing and growing over the past six-odd years since we raised our last fund. There is a natural growth that we have seen. We are very comfortable at our target deal range.”

The fund is looking for companies of $30-200 million in size, where an entrepreneur or management team has a track record and with whom it can partner to grow the business into a regional champion, van der Spuy said. The fund can take an “influential minority stake” or conduct a buyout.

It is currently looking at an opportunity in Mozambique and “see[s] a few opportunities” in North Africa, van der Spuy said. “The pipeline is particularly strong with some of the froth having been blown off the market over the past year. Counter-parties and owners are more realistic [on valuations].”

IAPEF 2 expects to announce its next transaction within the next four to six months. It has already made three investments to date, in South African mobile transacting technology provider wiGroup, South African consumer debt management company IDM and a further investment into mobile towers company IHS, in which the firm first invested in 2011, it said in a statement.

Fund I is yet to make any exits, but has just completed a dividend recapitalisation of one of its portfolio companies, which van der Spuy noted was “an interesting development within the African context”.

On two or three portfolio companies it has engaged in “early stage conversations” with potential buyers, van der Spuy said. “There may be news on that. The fund still has two and a half years to run so there is no firm decision or need to exit.”