Private equity investors need to bring more to the table than just capital
As competition for private equity deals in Africa starts to heat up, investors need to be able to clearly demonstrate their true value proposition.
This according to Dapo Okubadejo, a partner at professional services firm KPMG in Nigeria.
He noted that private equity investors need to offer more than just money. “It’s not just about providing capital but forming the right partnerships with portfolio companies and providing adequate operational support that will yield significant value uplift through strong earnings growth.”
“In addition, having a robust value-chain approach, adopting a roll-up strategy as well as deep local knowledge and experience to navigate through each market’s unique complexities, is pinnacle to achieving desired investment returns,” he added.
According to Kenya-based Steven Otto of SME-focused private equity firm Jacana Partners, entrepreneurs are often looking for operational support from their investors. “It is difficult to do a business on your own,” he told How we made it in Africa during an interview in Nairobi. “You can’t know everything. So usually people are either good in sales or producing or whatever, but you can’t be good in everything. What I see more and more is that there is a type of entrepreneur that actively looks for a partner, and says, ‘I not only need your money to grow my business, but I also want your skills, that you can bring people who can help me, and that I have a sounding board’.”
Investors getting serious about Africa
With slow growth in the West, many private equity firms are now viewing Africa as a potentially lucrative region for investment.
“Africa is now viewed by private equity houses and fund managers as a priority investment destination,” said Okubadejo. “As growth in other economies have slowed in recent years due to the 2008/9 recession and the current crisis in the Eurozone, investors have been looking to emerging markets and economies that will provide higher return rates, and Africa is continuously proving its business case for investment.”
Okubadejo said that a range of sectors are currently attracting attention from international and African-based private equity players – including natural resources, energy, infrastructure, consumer goods, financial services and agribusiness.
Last year, about US$1.1 billion of new private equity investments were made in sub-Saharan Africa, and around $1.4 billion was achieved in fund raising.
Despite the growing interest in Africa, the continent is not without its challenges. Okubadejo advised that the risks of investing in Africa should be evaluated against the strong growth potential and investment incentives available. “Whenever we speak with investors or potential investors about Africa, we always advise that Africa is about having the right risk-versus-reward approach.”