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The Source of Africa’s Private Equity Industry - January 2014

by Stuart Hunter

  • 29 Jan 2014
  • PE

Africa serves as a source of investment opportunity with its rising consumerism, growing infrastructure and abundance of natural resources. However, a lack of political stability seems to be one of the most significant factors preventing the continent from flourishing. Preqin’s comprehensive Fund Manager Profiles online service reveals that there are currently 135 private equity firms focusing exclusively on investing in opportunities in Africa. Collectively, these firms have raised approximately $15bn over the last 10 years and have an estimated $4bn in dry powder. 

Considering the fact that the continent’s private equity industry is relatively uncultivated, it is unsurprising that the traditional private equity investment strategies of buyout, venture capital and growth are adopted as main approaches for the majority of the 135 firms solely focusing on Africa. Eighty-three percent of these firms focus their aims on predominantly making buyout, growth or venture capital investments. Firms adopting a buyout strategy have raised the largest amount of capital over the last decade, amounting to just over $5bn, while growth and venture capital firms have managed to collect a total of $4bn and $2bn respectively. 

The majority of exclusively Africa-focused firms are situated in Africa, with 38% of firms based in South Africa and 40% located in other regions of the continent. Currently, 30 firms with headquarters in foreign countries solely focus on investment opportunities in Africa, with the largest hub of 15 firms based in the UK. Domestic private equity firms have raised just under $12bn in capital commitments over the last 10 years, accounting for 78% of the total. A greater appetite for risk and the local knowledge of African investors, which counters the sceptical attitude of foreign investors with regard to Africa’s potential for growth, could be underlying reasons behind the higher proportion of this capital originating from within the continent. 

The largest firm in terms of total funds raised in the last 10 years is Ethos Private Equity, having raised just under $1.6bn. The firm, established in 1984 and headquartered in South Africa, focuses on making investments in South Africa and selectively in other sub-Saharan economics. Ethos specialises in buyout acquisitions across a broad range of industries. Its most recent buyout fund, Ethos Private Equity Fund VI, closed on $800mn at the beginning of 2013, and remains its largest fund to date. Currently Ethos holds an estimated $500mn available in dry powder to invest in opportunities in Africa. 

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