High levels of bureaucracy and poor infrastructure have made it difficult for Africa-based companies to raise capital. However, private equity firms tend to be less risk-averse than other financial market participants and are thus able to address the shortfall in capital. According to Preqin’s Fund Manager Profiles database, there are currently 196 private equity firms based in Africa. These firms have raised $21.1bn in aggregate capital over the last decade and have $5.5bn available in dry powder to commit to new investments.
The firm that has raised the most capital over the last 10 years is Egypt-based Qalaa Holdings, collecting $2.4bn. The firm, formerly Citadel Capital, is controlled by its senior management and employees, and used to make control private equity investments in North and East Africa, frontier MENA countries, Kenya and Uganda. However, in 2013 the firm announced that it would not be making any more private equity deals going forward.
Ethos Private Equity has amassed $1.5bn in capital commitments over the last decade, the second largest amount of all Africa-based private equity firms. The firm focuses predominantly on investments in South Africa and selectively in other Sub-Saharan economies, namely Nigeria, Ghana, Kenya, Uganda and Tanzania. The firm’s most recent fund raised was Ethos Private Equity Fund VI, which closed on ZAR 7.9bn in January 2013.
South Africa houses a considerable number of private equity firms, with 44% of Africa-based firms headquartered in the country. Many private equity firms look to invest in Sub-Saharan Africa, particularly in South Africa, making the country a suitable base of operations. Mauritius is home to the second largest proportion of Africa-based firms (20%) due to its favourable tax environment. Nigeria (18%), Egypt (7%) and Ghana (6%) follow.
Despite their considerable number, private equity firms based in Africa are struggling to raise funds themselves. In 2014, 11 vehicles raised $1.4bn, the lowest figure since 2004 when under $900mn was raised. Small local firms are seemingly finding it hard to compete with global players in the market, such as Carlyle Group and The Abraaj Group, which have large teams on the ground in various countries across the continent.
This being said, more capital has been raised in January 2015 than in the whole of 2014 for Africa-based firms, according to Preqin’s Funds in Market database. Three funds closed in January 2015 raising an aggregate $2.4bn, and if fundraising continues in this vein, the current fundraising record of over $5bn raised in 2007 could well be broken.