Jacana absorbs Kenya-based firm

The merger with InReturn Capital, an East Africa-focused SME investor, comes as the firm prepares to raise a $75m fund.

Jacana Partners is gradually building itself into an African powerhouse.
The pan-African investor is in the process of merging with Nairobi-headquartered InReturn Capital, which has already rebranded to Jacana Partners.
The rebranding is the first step of a merger expected to close in the first quarter of 2013. It follows Jacana’s merger with Fidelity Capital Partners, a West African firm, in August last year.
Jacana was founded in 2008 by Stephen Dawson, the non-executive chairman of UK mid-market firm ECI, with the aim to deliver both financial and social returns by supporting African entrepreneurs. It is currently active in six markets in East and West Africa: Ghana, Kenya, Liberia, Sierra Leone, Tanzania and Uganda.
Its existing vehicles comprise a $32 million fund focused on West African SMEs, as well as an $11 million fund, targeting East Africa, which the firm managed in partnership with InReturn until now. Both firms have been working together for more than three years.
The unified Jacana is due to start raising a new fund, with a target of $75 million, in the coming months.

What we are offering to Development Finance Institutions, and others who are very interested in social impact, is a permanent commitment to the SME space.

Stephen Dawson

It will continue to deploy capital from both vehicles, Dawson told Private Equity International. He expects the West African fund to be fully invested by the middle of the year, whilst he sees the East African fund having enough spare capital to last until the end of 2013. The new vehicle is expected to reach a final close within the next 12 months.
The new Jacana franchises, as well as the new fund, will help expand the firm’s geographical horizon, Dawson said. The group is seeking to expand in the near future, with possible new ventures in Ethiopia, Nigeria and Francophone West Africa.
Larger resources should also allow the firm to pursue larger deals. “A larger fund gives a lot more potential for further rounds of expansion, but also for investing in bigger businesses that would need that sort of scale. We wouldn’t be able to talk to some of these companies seriously if we couldn’t invest significantly more than $1 million in East Africa,” Dawson argued.
Yet the firm remains committed to filling a funding gap in the SME market, he explained. “There are quite a lot of people investing $10 million or more, where there are businesses of more substance with stronger management teams. $5 million or below has long been the missing middle, and this hasn’t changed.”
Dawson thinks this is of particular interest to Development Finance Institutions, who represent a sizeable portion of the firm’s LPs. “What we are offering to Development Finance Institutions, and others who are very interested in the social impact of what we do, is a permanent commitment to the SME space. They often see people who are being successful in this segment, and who immediately want to raise a bigger fund and make bigger transactions. All their experience is then lost to the SME part of the market.”
The firm has invested $20 million to date in 20 companies, in sectors including healthcare, agro-processing, transport, construction and education. The social focus had been on job creation, Dawson said, with 1,300 jobs created since inception. 
He saw the development of consumer-oriented products and services, underpinned by the continent’s emerging middle classes, as offering the most promising avenues for future investments.