A report released recently by Africa Venture Capital Association (AVCA) highlights how Nigeria, Morocco, South Africa and Kenya each lead by huge margins their respective region in terms of attracting private equity.
Kennedy Nyabwala is CEO of startup Bwala. Two years ago, when he started his logistics company his vision on paper did not feature that he could be expanding his board to include Silicon Valley angel investor Justin Caldbeck.
Now the company which employs technology to facilitate delivery of cargo across East Africa, latest venture being into Uganda, needed funds to facilitate delivery. This led to Nyabwala seeking Caldbeck’s help and incorporating him into his board. The latter previously co-founded Binary Capital and is former partner at Lightspeed Ventures.
The case where local companies are seeking alternative funding for their start-ups is increasing. Kenya, Nigeria and South Africa are key magnets for private equity (PE) as more and more foreign-based capital companies enter into the market.
A report released recently by Africa Venture Capital Association (AVCA) highlights how Nigeria, Morocco, South Africa and Kenya each lead by huge margins their respective region in terms of attracting private equity.
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The most referenced case was when Rise Fund, a global impact investing fund managed by growth equity platform TPG Growth announced that it has signed an agreement to acquire $47.5M in Cellulant, a leading digital payments provider that reaches 40 million people across 11 African countries. The Rise Fund invested alongside Endeavor Catalyst, Satya Capital, Velocity Capital and Progression Africa.
“Across Africa, expanding easy-to-use and low cost mobile banking offers immense potential for impact and Cellulant is at the leading edge of that work,” said Bill McGlashan, CEO and co-founder of The Rise Fund. “We’re excited to invest in African entrepreneurs like Ken and Bolaji to help them grow their businesses and expand their impact on society. Cellulant is a perfect partner for The Rise Fund’s first investment in Africa.”
Cellulant’s digital payments platform delivers connected, flexible payment options for consumers and businesses, and works with financial institutions, governments and mobile network operators to increase transparency and expand their reach in Africa. Building on a business model that first debuted in Kenya and Nigeria in 2004, the company has since expanded its services across 11 African markets, including: Zambia, Ghana, Zimbabwe, Tanzania, Uganda, Botswana, Mozambique, Malawi, and Liberia.
“Cellulant occupies a unique position in the fintech ecosystem in Africa, with the potential to offer increased access, savings, and income to tens of millions of users across the continent,” said Yemi Lalude, Managing Partner for TPG in Africa. “As more and more smartphones come online across Africa, Cellulant makes it easy for customers to increase their incomes.”
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Beyond Cellulant, PE activity on the continent remained relatively stable in 2018 according to a report titled 2018 Annual African Private Equity Data Tracker. The overall PE environment in the continent has remained bullish.
The total value of African PE fundraising according to the AVCA report increased to US$2.7bn in 2018 from US$2.4bn in 2017, indicating investors’ confidence in Africa’s PE industry. The report however notes that the total deal value decreased marginally to US$3.5bn in 2018 from US$3.9bn in 2017, total deal volume rose significantly reaching 186 reported PE deals in 2018 (up from 171 in 2017).
Information Technology (19%), Consumer Discretionary (15%), and Consumer Staples (13%) accounted for almost half of the total number of PE deals in 2018, while Communication Services (which includes deals in Telecommunication Services) was the largest sector by value. Information Technology’s share of PE deal volume has grown significantly in recent years, accounting for 19% of PE deals in 2018, compared to only 10% in 2016.
This increase was mainly driven by growing deal activity in companies involved in the development of applications for the business and consumer market. The number of PE exits recorded in 2018 dropped to 46 from 52 in 2017, largely due to a fall in the number of exits recorded in South Africa (representing 20% of exit volume in 2018, compared to 42% from 2013 to 2017). Exits to trade buyers represented the most common exit route in 2018.
Eric Osiakwan, managing partner of Chanzo Capital, a leading player in the capital environment in Africa notes the situation in Africa is showing great potential. “There is an increase in the number of “smaller” PE deals by “local” PE Fund Managers whilst the big global PE Funds are retreating out of Africa due to lack of deals, which speaks to the market dynamics of Africa,” he adds.
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“There is going to be an increase in “smaller” PE deals as well as more Growth and Venture Capital deals because there is a huge concentration of pipeline in those spaces. There is too much big ticket PE capital looking at very few deals at the top – that is not sustainable.”
Among major countries in Africa, there has been an increase in the number of PE shedding off their ownership or selling to make profit, a process called exits. However, Kenya has recorded these engagements.
This Osiakwan attributes to the nature of the Kenyan economy. “Generally because the market is not fully developed some investors are exploring other liquidity mechanisms and a lot are building enough patience to allow their investments to mature over a longer horizon as opposed to the classical horizon.”
He continues, “For example, if you have a profitable asset that is paying you dividends then you won’t be in a rush to exit if you don’t need to. The Kenya market itself is at an inflection point so investors are sitting tight.”
Another significant buy in Kenyan market was the US-African focused private equity firm—Emerging Capital Partners (ECP)—announcing an investment to acquire a substantial majority in Artcaffé Group (Artcaffé), a restaurant and coffeehouse chain that operates fast-casual and casual concepts in Kenya.
Artcaffé’s most prominent chain, Artcaffé Coffee & Bakery, is a full-service bakery, coffee shop, bar and modern casual dining restaurant. The eating place which opened its first café in 2008 now manages 26 stores throughout Nairobi. ECP boasts of having raised over US$2 billion through funds and co-investment vehicles for growth capital investing in Africa.
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