EMPEA Insight Special Edition: Private Equity in Sub-Saharan Africa November 2010
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EMPEA Insight Special Edition: Private Equity in Sub-Saharan Africa November 2010 Published with the support of DBSA About EMPEA The EMPEA Africa Council The Emerging Markets Private Equity Association (EMPEA) is a non-profit, Runa Alam, Development Partners International independent, global industry association that promotes greater understanding of and a more favorable climate for private equity and venture capital investing Yvonne Bakkum, FMO in the emerging markets of Africa, Asia, Europe, Latin America and the J. Kofi Bucknor, Kingdom Zephyr Middle East. EMPEA was founded in 2004 with the belief that private equity Ngalaah Chuphi, Ethos Private Equity and venture capital can be critical drivers of economic growth in emerging markets while simultaneously generating strong returns for investors. Since its David Creighton, Cordiant Capital inception, EMPEA has grown its membership to over 270 firms representing Thierry Dalais, Lereko Metier the rich diversity of the private equity industry across global emerging markets. Hurley Doddy, Emerging Capital Partners EMPEA members play a variety of roles in the industry. While EMPEA’s focus Hisham El-Khazindar, Citadel Capital is to support the needs of fund managers investing in emerging markets, Rod Evison, CDC Group EMPEA also aims to serve institutional investors, funds of funds, service J-P Fourie, SAVCA providers, and others who play a significant role in building the industry. Murray Grant, Actis EMPEA’s members represent more than 50 countries and nearly US$500 billion in assets under management. Richard Kramer, African Capital Alliance Gloria Mamba, Development Bank of In support of its mission, EMPEA: Southern Africa • Researches, analyzes and disseminates authoritative information on Henry Obi, Helios Investment Partners emerging markets private equity; Davinder Sikand, Aureos Capital • Convenes meetings and conferences around the world to promote infor- Paul Tierney, Development Capital mation exchange between leading fund managers and institutional investors; Graham Thomas, Standard Bank • Offers professional development programs to enhance knowledge transfer; and, Private Equity • Collaborates with stakeholders from across the globe. David Wilton, IFC About DBSA EMPEA Editorial Team Editorial Director The Development Bank of Southern Africa (DBSA) is southern Jennifer Choi Africa’s leading development finance institution. In address- ing the challenges in both physical and economic infrastruc- Project Manager ture in the region, a major focus area of the Bank’s infrastruc- Nadiya Satyamurthy ture investment activities is reduction of backlogs in key sectors—transport, energy, mining and regional integration. Writing and Research DBSA provides long term debt, quasi-debt and equity funding Ted Hickey for such transactions in South Africa and across the region as well as being Rachel Keeler Emily Stromquist an institutional investor in a number of Private Equity Funds. In response to the critical shortfall of equity capital in key sectors of the regional economy, DBSA Executive Editor supports the establishment and growth of private equity funds with high levels Carlos Perry of development impact. DBSA-supported funds assist regional economies to secure long-term growth capital, access management skills, and financial Production Assistance expertise, all of which are key factors in expanding economic development. Poccuo To learn more about EMPEA or to request 1055 Thomas Jefferson Street NW • Suite 650 • Washington, DC 20007 USA a membership application, please send an Phone: +1.202.333.8171 • Fax: +1.202.333.3162 • Web: empea.net email to [email protected]. EMPEA Insight Special Edition: Private Equity in Sub-Saharan Africa Contents Acknowledgements..............................................................2 Letter from EMPEA’s CEO ..................................................3 EMPEA Methodology ..........................................................4 Overview of Private Equity in Sub-Saharan Africa .........................................................6 Sub-Saharan Africa’s Macroeconomic Environment ..........................................11 Fundraising Trends ...........................................................14 Investment Trends .............................................................21 Spotlight: South Africa ......................................................25 Spotlight: Nigeria ...............................................................28 Spotlight: East African Community ................................30 Spotlight: Frontier Markets ...............................................31 Spotlight: Africa’s Growing Middle Class ......................32 Key Investment Sectors .....................................................34 Exit Trends ..........................................................................38 Conclusion ..........................................................................40 Case Study: Brandcorp, South Africa .............................42 Case Study: Southey, South Africa .................................44 Case Study: Letshego, Botswana ....................................46 Sampling of Firms Investing in Sub-Saharan Africa .......................................................48 © EMPEA November 2010. All rights reserved. EMPEA Insight Special Edition: Sub-Saharan Africa 1 We greatly acknowledge the following individuals for their significant contributions to this report: John Bellew of Webber Wentzel; J. Kofi Bucknor of Kingdom Zephyr; Carolyn Campbell of Emerging Capital Partners; Ngalaah Chuphi of Ethos Private Equity; Casey Coler of Kingdom Zephyr; David Creighton of Cordiant Capital; Hurley Doddy of Emerging Capital Partners; Sean Dougherty of Brait Private Equity; Emile du Toit of the Development Bank of Southern Africa; J-P Fourie of South African Venture Capital & Private Equity Association; Patrick Helson of Actis; Andrew Hunt of Marlow Capital; Kem Ihenacho of Clifford Chance; Ralph Keitel of International Finance Corporation; Hakim Khelifa of Tuninvest-Africinvest Group; Kiriga Kunyiha of Aureos Capital; Milton Lore of African Venture Capital Association; Gloria Mamba of the Development Bank of Southern Africa; Dale Mathias; Roddy McKean of Webber Wentzel; Henry Obi of Helios Investment Partners; Karima Ola of Chayton Capital; Martin Poulsen of the African Development Bank; Ibrahim Sagna of Blackthorn Capital Partners; Jean-Marc Savi de Tove of CDC Group; Christophe Scalbert of Proparco; Peter Schmid of Actis; Namita Shah of Emerging Capital Partners; Davinder Sikand of Aureos Capital; Graham Thomas of Standard Bank Private Equity; Paul Tierney of Development Capital; Mara Topping of White and Case; and, David Wilton of International Finance Corporation. Data and analysis presented in EMPEA publications is derived from EMPEA’s proprietary industry database, FundLink, made possible with generous support from the following institutions: CDC, DBSA, DEG and FMO. We gratefully acknowledge their contributions. 2 Emerging Markets Private Equity Association Dear Reader, EMPEA is very pleased to present this Special Edition Insight: Private Equity in Sub- Saharan Africa, our first in-depth report on the region and an expansion of our regular EMPEA Insight series, now in its third year. Throughout these pages you will also see much evidence of the direct, collaborative role that EMPEA members play in our research process. This report comes at a pivotal time for the Sub-Saharan Africa region, and for our industry. At no other time in its young history has our industry faced such a mix of challenge and opportunity. Private equity investors in Africa in particular are tasked with deftly deploying capital across a field thick with prospects while at the same time navigating what remains an exceedingly chilly fundraising environment in Western countries, where the bulk of conventional capital sources still lie. The launch of this very special publication coincides with two critical events for EMPEA that illustrate our commit- ment to supporting the ongoing development of the industry in Africa. First, this November marks our second annual Private Equity in Africa Leadership Summit, co-hosted with the Financial Times This Is Africa, and with the participation of African luminaries such as Sierra Leone’s President Ernest Koroma and South Africa’s Minister of Finance Pravin Gordhan. Drawing yet another sell out crowd including more than 150 institutional investors, we expect a very engaged discussion aimed at debunking myths about risk and sharing real examples of success on the sub-continent. Second, this publication’s release is also timed with the inaugural meeting of EMPEA’s newly formed Africa Council, comprised of a hand-picked group of EMPEA members representing Africa’s most respected private equity veterans, as well as its most staunch advocates. We at EMPEA look forward to working closely with each of our Council representatives in the future on the development of EMPEA’s programming and research specific to the African markets. This publication could not have been possible without the participation of and input from, most importantly, EMPEA’s members. We are tremendously grateful to the dozens of individuals who shared their insights and generously provided feedback, including verification of the numerous datapoints presented here. We would also like to acknowledge the critical financial support for this publication from the Development Bank of Southern Africa, a genuine anchor for the African