Africa: “The Big Prize” For Abraaj Private Equity Group

Courtesy of the Financial Times, an interesting article on one private equity group’s views on Africa:

After a deal-making spree in Africa in 2013 that included investments in Ghana, Cote d’Ivoire and Kenya, private equity group Abraaj is on track for an equally active 2014.

Abraaj, which has $7.5bn in assets under management and is based in Dubai, expects to complete four transactions in the region by the end of the year, including in South Africa, Nigeria and Kenya, partner Sev Vettivetpillai told beyondbrics.

Within the next 12 months, Abraaj expects to deploy between $200m and $300m in sub-Saharan Africa from its existing funds and to raise an additional $500m to $750m in capital, he said.

“We expect the next 12 to 18 months to be quite active,” he said. “The four deals, I would call them landmark deals. The companies that we’re working with and looking to buy are regional players already.” He added that the companies were in the financial services, consumer goods and logistics sectors.

Vettivetpillai said Abraaj would like to do more deals in oil-rich Angola and in Ethiopia, where US private equity group KKR this week made its first direct investment in Africa, as well as in Ivory Coast, which is rebuilding its economy after a brief civil war in 2011.

Private equity deal-making in the region is gathering pace as economies record strong growth and as an expanding middle class fuels demand for goods and services that were once seen as luxuries. Private equity investment in sub-Saharan Africa reached a five-year high of $1.6bn in 2013, according to data from the Emerging Markets Private Equity Association.

The continent’s biggest economies, Nigeria and South Africa, have traditionally attracted the largest sums but interest in relatively untapped markets like Ethiopia is growing. KKR invested $200m in Ethiopian rose producer Afriflora, gaining a foothold in Africa’s second most populous nation.

Although Abraaj is “pushing hard” to do deals in Ethiopia and has a team in Kenya dedicated to the country, the state’s firm grip on the private sector makes it a challenging place for investors , said Vettivetpillai.

“The whole question about repatriation of capital is still a concern,” he said. “Although the government states there’s a very clear policy set as to repatriation, in reality it’s not that easy.”

In Angola, where Abraaj has made one investment, the main headache is obtaining government approval for investments, a process that can take 6 to 9 months, Vettivetpillai said. Currently, the firm is in talks with companies in the financial services, oil and gas services and manufacturing sectors.

“The effort it takes once you’ve consummated the deal to get the necessary approvals is time-consuming. The investment environment as a financial investor is quite tough.”

Abraaj struck its first deal in Ivory Coast last year, investing in African Industrial Services, an engineering services company. That same year it acquired west African frozen dairy products company Fan Milk and made an investment in Ghana Home Loans, a residential mortgage provider.

It also made a $6.5m equity injection into the Nairobi Women’s Hospital with Sweden’s Swedfund. Abraaj had initially invested in the hospital in 2009 through its $105m Africa Health Fund, which has also financed private healthcare firms in Togo, Ghana and Uganda.

Vettivetpillai said Abraaj’s appetite for further healthcare deals in Africa is “very strong” but as the sector is fragmented outside South Africa, the group is exploring ways of delivering health services at scale.

The firm, which has deployed just over $1bn globally in healthcare in more than 20 transactions, is aiming to raise up to $1bn for a Global Health Fund that will invest in Africa and Asia.

Vettivetpillai declined to comment on the fundraising target but said: “In addition to our core funds looking at healthcare as a growth sector we’re putting together a pool of money to do healthcare in Africa, predominantly sub-Saharan Africa, and the sub-continent, in India, Bangladesh, Pakistan, that is focused on innovative healthcare models.”

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