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Another Africa-Focused Private Equity Fund Closes Above Target

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April 1, 2015

Private equity firm Development Partners International announced on Tuesday that it has closed its second Africa-focused fund. The fund was able to raise nearly 45% above its target, which is another testament to Africa’s continued ability to attract investors as the continent’s consumer class continues to expand.

 

The Latest Fundraising Effort
The private equity firm is the latest example of good fundraising efforts. Development Partners International (DPI) managed to raise $725 million with its second Africa fund, which is nearly twice as much as the fund was aiming for. The UK-based firm has been aggressive in its investment strategy and managed to create internal return rates of over 30% with its previous Africa-focused fund. Runa Alam, chief executive and co-founder of DPI, told the Financial Times, “We invest in industries that benefit from the emerging middle class – these are industries that are growing at 20 per cent a year; a rising tide lifts all ships.”

 

Other recent fundraising efforts include the $1.3 billion raised by Abraaj, the Dubai-based private equity firm. On top of this, Helios, the London-based firm, announced in January it has raised $1.1 billion with its third Africa-focused fund.

 

Growing Tide of Private Equity
DPI isn’t the only firm actively venturing in the African markets. Some of the biggest private equity firms have gotten involved in the continent for the first time, increasing the overall level of investment. Data by the African Private Equity and Venture Capital Association (AVCA) reveals deal activity in the continent stood at the second highest level on record, totalling $8.1 billion. The amount is not far behind the record amount of $8.3 billion in 2007. Since 2007, there have been transactions worth over $34 billion.

 

Furthermore, African PE funds have managed to raise $22 billion between 2007 and 2014. In some regions, fundraising efforts have increased rapidly. The Wall Street Journal recently reported how sub-Saharan Africa-focused funds raised $4 billion in 2014, tripling the fundraising efforts from 2013.

 

Tapping into the Growing Middle Market
According to the Financial Times article, there are some who claim the continent doesn’t yet provide enough big deal making opportunities. But many private equity firms disagree and say the growing middle classes are creating enough middle market opportunities. Miss Alam told the newspaper, “Car insurance is a standard emerging middle class product, as is pharma, as is sending your child to university – once you’re in the middle class you will want this product.”

 

Many people agree with this view. The chair of the London-based private equity firm 8 Miles, Bob Geldof, told the Wall Street Journal that, “The potential rewards in Africa are far greater than anywhere else”. The sector is well suited for the continent and for investors, private equity offers the best way to tap into the growing market space.

 

Data published in a CBC News article on Tuesday shows that Africa’s working-age population is growing faster in the next 25 years than China or India’s. The economies in the region are also expected to see growth figures of 5% on average, providing a number of lucrative opportunities for private equity firms.

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