4. Long lead times
Chris Derksen, head of Africa and global frontier markets strategies at Investec Asset Management, recently closed a deal in Angola, a country known for its difficult business environment, and gave an example of how long the initial deal process can take. “Sourcing the deal took us a year and a half. We had a guy living in Luanda, for over a year, to speak to the right people, get to know the right people and eventually we sourced exactly the right deal,” said Derksen.
Derksen added that private equity fund managers don’t have a defined universe of investment opportunities like investments made on stock exchanges.
“If you talk about private equity in Africa you start with a clean slate, you have to get to know good people in any one of 54 very different countries, and these good people have to run businesses which you believe in and which you think will create significant value over time,” said Derksen. “And in order to get there we are talking about a very long lead time, building very good relationships over a long time, and eventually I think you can make extremely good investments.”
5. A big opportunity
Derksen explained why he believes there is so much opportunity for private equity investments on the continent.
“I think the one thing to lift out when you think private equity is to benchmark our continent with the developed world,” said Derksen. “Look at the developed world and you look at market capitalisation to GDP ratio (it’s a bit like a PE to a country I guess) you will see that that ratio for Africa (the extent to which corporate value is capitalised on the domestic stock exchanges) is about one-fifth of what it is in the developed world – a lot more of that potential corporate value is in the private sphere as opposed to listed on public stock exchanges. So that’s one very good reason why I believe private equity has a big future on this continent.”