SA los­ing al­lure to fast-grow­ing ri­vals

Lesotho Times - - Business -

NEW YORK — South Africa is no longer the des­ti­na­tion of choice for pri­vate eq­uity in­vestors seek­ing to tap re­turns on the con­ti­nent.

Buy­out firms are in­creas­ingly tar­get­ing mar­kets such as Kenya and Nige­ria, Africa’s largest econ­omy, where ex­pan­sion this year is fore­cast by the In­ter­na­tional Mon­e­tary Fund to be more than dou­ble that of South Africa.

“Al­most all the growth is out­side South Africa’s bor­ders,” An­drew De­war, manag­ing part­ner of Jo­han­nes­burg-based Rock­wood Pri­vate Eq­uity (Pty) Ltd., which was spun out of Bar­clays Africa Group Ltd in 2013, said in an in­ter­view on Feb. 13.

“The shift from South Africa to the rest of Africa also means the way ex­its hap­pen will change.

“You could use list­ings in Lon­don if you get to scale in Africa.”

South Africa’s econ­omy is be­ing hob­bled by power short­ages, with the state-run util­ity ra­tioning elec­tric­ity for 11 days so far this month, help­ing to push the rand to a 13-year low.

Re­turns for buy­out firms in the coun­try have been shrink­ing for a decade and lag be­hind the bench­mark stock in­dex.

“We used to get a net IRR of 30 per­cent; now it’s about 18 to 20 per­cent,” An­dre Roux, who founded Ethos Pri­vate Eq­uity Ltd in Jo­han­nes­burg, said at a con­fer­ence on 13 Fe­bru­ary.

He was re­fer­ring to the an­nual net in­ter­nal rate of re­turn, buy­out firms’ bench­mark for mea­sur­ing the suc­cess of deals.

Ivory Coast Southern Africa is now the third-most at­trac­tive re­gion for buy­out firms af­ter West Africa and Sub-sa­ha­ran Africa, ac­cord­ing to an African Pri­vate Eq­uity and Venture Cap­i­tal As­so­ci­a­tion re­port re­leased last year.

Nige­ria has at­tracted US pri­vate eq­uity firm Car­lyle Group LP, the world’s sec­ond­largest man­ager of in­vest­ment al­ter­na­tives to stocks and bonds, which in­vested $147 mil­lion for an 18 per­cent stake in Di­a­mond Bank Plc and said it would spend as much as $200 mil­lion in a sec­ond Nige­rian com­pany this year.

Other tar­gets for the firm in­clude Ghana and Ivory Coast in West Africa, Car­lyle said in November.

Swiss Re AG was lured to Kenya in Oc­to­ber when Leapfrog In­vest­ments, a pri­vate eq­uity firm that fo­cuses on Africa and Asia, sold a mi­nor­ity stake in Kenya’s Apollo In­vest­ments Ltd.

Leapfrog paid 1.68 bil­lion shillings ($18 mil­lion) in November to gain con­trol of Kenya’s Res­o­lu­tion In­surance and tap growth in health cov­er­age in that coun­try.

Nige­ria, Kenya, Ghana, Zam­bia, Mozam­bique and An­gola are the coun­tries Ethos is look­ing to for ex­pan­sion op­por­tu­ni­ties for its in­vest­ments, Ethos Chief Ex­ec­u­tive Of­fi­cer Stu­art Macken­zie said in an in­ter­view on Feb. 13 at the con­fer­ence in Stel­len­bosch, near Cape Town.

‘Go­ing North’ “South African cor­po­rates are go­ing north in search of growth and part of our strat­egy is to take our in­vest­ments there,” Mr Macken­zie said. Ethos is tar­get­ing lo­gis­tics, con­sumer, busi­ness and in­dus­trial ser­vices com­pa­nies, he said.

Au­tozone, an au­to­mo­tive-parts re­tailer sold by RMB Cor­vest and Zico Cap­i­tal to Ethos in Jan­uary, has ex­panded into Namibia, Zim­babwe, Swazi­land and Botswana.

Tsebo Out­sourc­ing Group Ltd, con­trolled by Rock­wood, has ex­panded from South Africa into coun­tries in­clud­ing Namibia, Botswana and in 2013 won its first panAfrican contact from Bar­clays Plc to man­age 2,000 sites across 12 coun­tries.

En­vi­roserv Hold­ings Ltd., Rock­wood’s waste-man­age­ment com­pany, has ex­panded into 15 coun­tries out­side of South Africa. “Our port­fo­lio is 90 per­cent out­side of South Africa,” Peter Baird, head of Stan­dard Char­tered Plc’s buy­out unit in Africa, said at last week’s con­fer­ence.

“We’re find­ing loads of good in­vest­ments out­side of South Africa.

There’s lots of talk of a wave of cap­i­tal wash­ing over African pri­vate eq­uity.”

IPO Choices As much as $50 bil­lion al­lo­cated to pri­vate eq­uity in Africa has yet to be in­vested, ac­cord­ing to the Southern African Venture Cap­i­tal and Pri­vate Eq­uity As­so­ci­a­tion. Rock­wood’s Tsebo may tap into that cash as the firm pre­pares to sell its in­vest­ment by year end.

There have been as many as 40 ap­proaches for Tsebo, many from other buy­out com­pa­nies, ac­cord­ing to De­war.

The FTSE/JSE Africa All Share In­dex ad­vanced 18.8 per­cent a year on av­er­age in the decade ended Septem­ber 2014 com­pared with pri­vate eq­uity’s an­nu­al­ized rate of re­turn of 18.5 per­cent, net of fees, ac­cord­ing to the most re­cent re­search from the pri­vate eq­uity as­so­ci­a­tion.

As South African com­pa­nies ex­pand in Africa and gain from more rapidly ex­pand­ing mar­kets, it be­comes more at­trac­tive to con­sider al­ter­na­tives to Jo­han­nes­burg’s stock mar­ket for ini­tial pub­lic of­fer­ings, ac­cord­ing to some ex­ec­u­tives.

A share sale for En­vi­roserv “would be bet­ter on Lon­don’s AIM than on the JSE,” said Rock­wood’s De­war.

“We used to take a coun­try dis­count to list in South Africa. Ev­ery­body’s grow­ing panAfrican and then that dis­count dis­ap­pears.”

— Bloomberg

SA’S ri­vals like Kenya are grow­ing at a faster rate than Africa’s most ad­vanced econ­omy.

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