Private equity: Africa shifts from a seller’s to a buyer’s market
Quantum Global is an international group of companies active in the areas of private equity investments, investment and private wealth management, as well as macroeconomic research and econometric modelling.
Quantum Global’s private equity arm manages a family of funds targeting direct investments into Africa in the sectors of agriculture, healthcare, hotels, infrastructure, mining and timber – as well as a sector-agnostic structured equity fund. We spoke to Adrian Leuenberger, group head of asset management at Quantum, about private equity trends in the region and the countries where the group sees potential.
Discuss some of the trends you are seeing in sub-Saharan Africa’s private equity space.
One of the big private equity trends is that the region has shifted from a seller’s market to a buyer’s market. When Quantum Global first started operations a few year ago, there were many deals in all our targeted sector areas, but we abstained because we were just not willing to pay the price. Valuations were really inflated. However, asset prices have since come down significantly, which is very positive.
We also expect the appetite of Western firms to invest in Africa to improve in the coming years. However, this will not be a short-term trend, but rather a medium- to long-term development.
Describe the current investment environment in the region, and where you see opportunities for private equity deals.
That’s not an easy question to answer, because Africa is such a diversified continent. We need to differentiate between economies that are dependent on commodities, and those that are not. Of late, the commodity exporters have run into difficulties because of the falling oil and metal prices. However, some of these countries are now starting to look very attractive to us.
The first reason for this is that the low price of crude is forcing these countries to diversify, creating interesting opportunities. Secondly, depreciation of local currencies means that from a foreign investor perspective, these assets can now be bought at much lower prices – as opposed to what it was in the past.
Are there specific countries you are focusing on?
Quantum Global is exploring various opportunities across sub-Saharan Africa. Over the years, we’ve sharpened our focus because it is impossible to target every opportunity in every African country. One of our focal countries is Angola. It’s an interesting country, with enormous potential for further growth. In spite of being impacted by the decline in oil prices, Angola is trying to diversify its economy and open up to foreign investments. For example, Angola has vast areas of fertile farming land – there is so much that can be done to grow the agricultural industry. The plunge in oil price has motivated many to look beyond just selling oil.
Another country we believe has strong potential is Nigeria, which has some interesting infrastructure projects in the pipeline. We are learning more about the country’s DNA and have investigated some potential projects. The next phase will be to start deploying capital.
On the other side of the continent there is Kenya and the greater East African Community. Here there are some opportunities that we are actively pursuing.
Earlier in the year, Quantum acquired the InterContinental Hotel in Zambia’s capital, Lusaka. Tell us more about the deal and the potential you see in the region’s hospitality sector.
Our hospitality fund is a little more open for investments outside the core countries that I mentioned earlier. For the hospitality fund, we are focusing on major cities on the continent. The InterContinental Hotel is basically a landmark in Lusaka, and is a regular host to international conferences. We might even consider refurbishing the property.
And it doesn’t necessarily have to be a five-star hotel. We also see potential to cater for the domestic market, not just international travellers. Our continental approach to hotel investments also seeks to capitalise on the significant undersupply of hotel management capacity, and to address the urgent need for skilled local and supply chain services for the hospitality industry.
What are the barriers to entry for foreign private equity firms wanting to invest in sub-Saharan Africa?
Despite the fact that many international investors are now looking at opportunities on the continent, there are still many barriers to entry. There is no quick money in, quick money out – that is just an illusion. We understand these barriers to entry, and that is why we focus on selected countries, as opposed to trying to tackle the entire continent.
One of the challenges is understanding the continent’s various cultures. Each African country is different, and even within certain countries you will find many different cultures.
Another obstacle is the perception of corruption. Many western companies shy away from investing in Africa simply because they are concerned about potential reputational or compliance issues. The key to overcoming this is to have the right people on board, with a deep understanding of the markets, to make sure that you explore the right opportunities.