Smaller deals get the spotlight as private equity juggernaut evaporates

Not so long ago when equity funds ware dumping money in Africa, a family-owned grocery chain chances to attract investors would have been second to none.
14 Nov 2016 – Reuters

But as times have got tougher for investors, small and midsize businesses like Food Lover’s Market are making up the bulk of deals on the continent.

Two years ago, an $8.1 billion investment spree by some of the world’s biggest private equity funds led to expectations that Africa would feature strongly in their portfolios.

U.S. giant KKR made its first investment in the continent, putting $200 million into Afriflora, a flower company in Ethiopia. Carlyle put money into Nigeria’s Diamond Bank (DIAMONB.LG) while Permira backed a management buy-out of South African data center firm Teraco Data.

But with falling commodity prices dragging down growth, some of these deals are souring, big money flows have dried up, and firms are finding it harder to sell or float their investments.

Standard Chartered has halved its private equity team in Africa in recent months as it looks to sell-off its assets following a number of disappointing deals.

The total value of private equity deals in Africa during the first half of 2016 was just $900 million, according to the African Private Equity and Venture Capital Association (AVCA).

“You need to be a bold investor today,” said Andrei Vorobyov, a partner in Bain & Company’s Johannesburg office.

“I don’t think anybody predicted such a decline in commodity prices.”

Nigeria, Africa’s largest economy, fell into recession for the first time in 25 years in the second quarter of 2016, while business confidence in South Africa was at its lowest in three decades in September.

Yet while big buyouts are out, the number of smaller private equity deals in Africa is rising as investors pick off opportunities too small for global funds, AVCA data shows.