Private equity investment in West Africa will continue to rise, driven by the emergence of regional funds and economic fundamentals, according to the African Private Equity and Venture Capital Association (AVCA). These include a young work force, an emerging middle class, rapid urbanisation, increasing political stability and an improving regulatory framework.
“The outlook remains very promising for West Africa”, AVCA said in its Spotlight on West Africa Private Equity report.
There were 311 reported deals in the region since 2007 with a deal value of $6.1 billion and 75 exits, according to AVCA data. The value of deals in the region would be higher if investments described as “multi-regional” were not excluded, the report said.
“We expect to see increasing deal activity as the introduction of a common legal framework, currency and accounting system facilitates investment in the OHADA [“Organisation pour l'Harmonisation en Afrique du Droit des Affaires] region,” AVCA head of research and strategy Dorothy Kelso said in a statement.
West Africa now accounts for the single greatest share of private equity transactions in Africa by number, and the second largest share by value, the AVCA report said.
The mean deal size in West Africa from 2007 was $5 million with more than a third of private equity investment transactions to the end of the first half of 2015 in small and medium sized enterprises, according to AVCA.
“There are numerous single country small and medium-sized companies looking for capital. The diaspora is returning, they want Western standards and there is a gap for local companies to supply that demand. It is not by any means a saturated market,” Kelso told Private Equity International.
In the same period, the top five sectors attracting funding for SMEs in West Africa were similar to those attracting funds across the board, with financials ranking first, followed by industrials, consumer discretionary, consumer staples and then healthcare. Accounting for all sizes of investing, materials was the fifth most popular category.
Nigeria and Ghana accounted for about half of SME deals by number and two thirds by value from 2011-2015 1H, although the range of countries attracting SME private equity investment has expanded since the 2007-2010 period to include Mauritania, Liberia and Sierra Leone, AVCA said. Investment has also shifted out from the urban centres of Lagos and Accra to elsewhere.
The SME data includes companies that received less than $10 million in equity.
Overall, Nigeria and Ghana continue to attract the vast majority of private equity capital in West Africa, accounting for 65 percent of deal volume and 93 percent of deal value since 2007, according to AVCA’s report.
Firms fundraising in the region and targeting SME investments include Adenia Partners, which is targeting $200 million for its fourth fund, more than double the size of its previous vehicle, as reported by PEI. The fund will target control and some growth investments in the range of €5-20 million.
Other funds currently collecting commitments include AfricInvest Fund III, targeting $266 million, CBO West African Growth Private Equity Fund, targeting $150 million, Verod Capital Fund II looking to collect $100 million, and Advanced Finance & Investment Group, which is raising Atlantic Coast Regional Fund II targeting $300 million, according to AVCA.
Completed fundraisings include the West Africa-focused Synergy Private Equity Fund, which closed on $100 million.
Africa and Asia focused growth capital fund Apis Growth Fund I announced in mid-December that it is acquiring a significant minority stake in MicroCred, which provides financial services to the micro, small and medium-sized segment across Madagascar, Senegal, Nigeria, Cote d’Ivoire, Mali and Tunisia, as well as in China. The firm has loan book of more than $300 million.
Apis Growth held a first close on $157 million and is targeting $250 million to invest in financial services in Africa and South Asia, as reported by PEI.
It follows London-based Duet Private Equity Group’s announcement in mid-December that it has acquired dairy and fruit juice processing company Societe Africaine des Produits Laitiers et Derives (SAPLED) in Cote d’Ivoire.
SAPLED owns the Tampico fruit juice license in Cote d’Ivoire, Burkina Faso, Togo, Benin and Guinea and will serve as a platform to “grow its existing portfolio and launch new product lines,” Duet Private Equity director Maty Ndiaye said in a statement.
The firm said it believed that due to rising population and purchasing power, food consumption and grocery retail sales in Francophone West Africa are expected to deliver double-digit annual growth over the next five years.